As filed with the Securities and Exchange Commission on July 14, 1997
Registration No. ___________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SEQUENT COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0826369
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
15450 S.W. Koll Parkway
Beaverton, Oregon 97006-6063
Telephone: (503) 626-5700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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ROBERT S. GREGG
Sr. Vice President-Finance and Legal and Chief Financial Officer
Sequent Computer Systems, Inc.
15450 S.W. Koll Parkway
Beaverton, Oregon 97006-6063
Telephone: (503) 626-5700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------
Copies to:
MARGARET HILL NOTO JOHN A. FORE
Stoel Rives LLP Wilson Sonsini Goodrich & Rosati
900 SW Fifth Avenue, Suite 2300 Professional Corporation
Portland, Oregon 97204 650 Page Mill Road
(503) 224-3380 Palo Alto, California 94304
(415) 493-9300
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum
of Securities to be to be Offering Price per Aggregate Offering Amount of
Registered Registered(1) Share (2) Price (2) Registration Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share ............ 6,037,500 shares $21.375 $129,051,562.50 $39,106.53
========================================================================================================
<FN>
(1) Includes 787,500 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee based on the average of the high and low prices for the
Common Stock as reported by the Nasdaq National Market on July 7, 1997 in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
</FN>
</TABLE>
<PAGE>
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
- -------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
- -------------------------------------------------------------------------------
PROSPECTUS (Subject to Completion)
Issued July 14, 1997
5,250,000 Shares
[SEQUENT LOGO]
COMMON STOCK
Of the 5,250,000 Shares of Common Stock offered hereby, 4,200,000 Shares are
being offered initially in the United States and Canada by the U.S.
Underwriters and 1,050,000 Shares are being offered initially outside
of the United States and Canada by the International Underwriters. See
"Underwriters." Of the total 5,250,000 Shares of Common Stock being
offered, 4,199,439 Shares are being sold by the Company and 1,050,561
Shares are being sold by certain Selling Shareholders. See
"Selling Shareholders." The Company will not receive any of
the proceeds from the sale of Shares by the Selling
Shareholders. The Company's Common Stock is listed on
the Nasdaq National Market under the symbol "SQNT."
On July 11, 1997, the last sale price of the
Common Stock as reported on the Nasdaq
National Market was $23 3/4 per Share.
See "Price Range of Common Stock."
----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 6 HEREOF.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $_______ A SHARE
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Proceeds to
Public Commissions (1) Company (2) Selling Shareholders
-------- --------------- ----------- --------------------
<S> <C> <C> <C> <C>
Per share ............... $ $ $ $
========
Total(3) ................ $ $ $ $
========
- ---------------
<FN>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at
$350,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
787,500 additional Shares at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the
total price to public, underwriting discounts and commissions and
proceeds to the Company will be $_______, $_______ and $_______,
respectively. See "Underwriters."
</FN>
</TABLE>
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The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein, and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel
<PAGE>
for the Underwriters. It is expected that the delivery of the Shares will be
made on or about ___________, 1997, at the office of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in immediately available
funds.
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MORGAN STANLEY DEAN WITTER
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
----------
July __, 1997
<PAGE>
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company, by the Selling Shareholders or by
any Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the shares of Common
Stock offered hereby, nor does it constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby to any person in any
jurisdiction in which it is unlawful to make any such offer or solicitation to
such person. Neither the delivery of this Prospectus nor any sale made hereby
shall under any circumstances imply that the information contained herein is
correct as of any date subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
Page
Incorporation of Certain Documents by Reference.............................. 1
Prospectus Summary........................................................... 2
The Company.................................................................. 5
Risk Factors................................................................. 6
Use of Proceeds..............................................................10
Dividend Policy..............................................................10
Price Range of Common Stock..................................................10
Capitalization...............................................................11
Selected Consolidated Financial Data.........................................12
Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................14
Business.....................................................................20
Selling Shareholders.........................................................30
Management...................................................................31
Certain United States Tax Consequences to Non-United States Holders..........32
Underwriters.................................................................35
Legal Matters................................................................38
Experts......................................................................38
Available Information........................................................38
--------------------
Sequent(R), Symmetry(R) and DYNIX/ptx(R) are registered trademarks and
Parallel STREAMS, NUMA-Q, NTX- 2000 and IQ-Link are trademarks of Sequent
Computer Systems, Inc. This Prospectus also refers to trademarks held by other
corporations.
--------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
--------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITERS."
--------------------
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-15627) pursuant to the Exchange Act are incorporated in this Prospectus by
reference: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1996; (ii) the Company's Quarterly Report on Form 10-Q for
the quarter ended March 29, 1997; and (iii) the description of the Company's
Common Stock contained in the Company's Registration Statement on Form 8-A filed
under Section 12 of the Exchange Act, including any amendment or report updating
such description.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such document (all such documents, and the documents enumerated above, being
hereinafter referred to as "Incorporated Documents").
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon the written
or oral request of such person, a copy of any or all of the Incorporated
Documents, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference therein. Requests for such copies should
be directed to Sequent Computer Systems, Inc., 15450 S.W. Koll Parkway,
Beaverton, Oregon 97006, Attention: Robert S. Gregg, Sr. Vice President-Finance
and Legal and Chief Financial Officer (telephone: (503) 626-5700). The
information relating to the Company contained in this Prospectus does not
purport to be comprehensive and should be read together with the information
contained in the Incorporated Documents.
----------
1
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus or
incorporated herein by reference. Except as otherwise indicated, all information
in this Prospectus assumes that the Underwriters' over-allotment option is not
exercised. See "Underwriters."
THE COMPANY
Sequent is a leading provider of high-end scalable data-center-ready open
systems solutions for large organizations spanning diverse industries. The
Company pioneered the development of large-scale, Intel-based symmetric
multiprocessing ("SMP") systems in the 1980s and has installed over 8,000 SMP
systems worldwide. In 1996, Sequent was first to market with large-scale cache
coherent non-uniform memory access ("CC-NUMA") systems based on Intel's Pentium
Pro architecture and designed to run the UNIX operating system. Beginning in
1998, the Company plans to make the Microsoft Windows NT operating system
available on its NUMA-Q architecture. The Company's products are used primarily
as database servers for large on-line transaction processing ("OLTP") and
decision support systems ("DSS")/data warehousing applications built with
relational database management system ("RDBMS") software.
Sequent's business strategy is to provide enterprise-wide systems that
enable large organizations to manage and use complex information. Sequent
leverages the research and development efforts of industry-standard component
suppliers by using their products and applying Sequent's expertise to design and
build large, scalable data-center-ready open systems. Through technology and
marketing partnerships with industry-leading hardware and software vendors, the
Company develops and sells a broad range of offerings that address the needs of
large organizations for OLTP and DSS. Sequent sells its products and services
worldwide through its direct sales force, through distributors and,
increasingly, through arrangements with systems integrators. The Company's
consulting and professional services organization helps customers diagnose their
information technology problems and develop appropriate solutions based on the
Company's offerings. Sequent consultants and professional services personnel
provide value-added services both directly to customers and in partnership with
systems integrators.
Recent Developments
The Company's second quarter of fiscal 1997 ended on June 28, 1997. The
Company estimates that revenues for the quarter will be in the range of $205
million to $210 million and net income will be in the range of $7.5 million to
$8.5 million, representing between $.20 and $.23 per share.
On July 14, 1997, the Company announced the signing of a master contract
with The Boeing Company ("Boeing") for the purchase of NUMA-Q systems and
professional services from Sequent over a 12-month period. The Company has
received initial purchase orders from Boeing under the contract for $59 million,
of which approximately $36 million is expected to be included in revenues for
the second quarter of fiscal 1997. The master contract also provides Boeing with
options to purchase an additional $46 million of products and services through
March 1998.
The Sequent systems sold and to be sold under the Boeing contract include
disk storage subsystems manufactured by EMC Corporation and tape libraries
manufactured by Storage Technology Corp. In addition to providing database
servers for the project, Sequent is providing architectural design and
implementation expertise through its on-site team of professional services
consultants. Accordingly, margins on revenues from the Boeing contract are
expected to be lower than the Company's overall margin levels during the last
year due to the mix of products and services and the size of the contract.
2
<PAGE>
THE OFFERING
U.S. Offering.....................................4,200,000 Shares
International Offering............................1,050,000 Shares
Total...............................5,250,000 Shares (including
4,199,439 Shares by the
Company and 1,050,561 Shares
by the Selling Shareholders)
Common Stock to be outstanding after the
offering........................................39,103,000 Shares (1)
Use of proceeds...................................For repayment of debt and
general corporate purposes
Nasdaq National Market symbol.....................SQNT
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
Fiscal Year Ended Three Months Ended
------------------------------ ------------------
Dec. 31, Dec. 30, Dec. 28, Mar. 30, Mar. 29,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Product ..................... $341,504 $395,941 $414,418 $ 81,109 $105,567
Service ..................... 109,319 144,404 180,944 39,636 51,807
-------- -------- -------- -------- --------
Total revenue 450,823 540,345 595,362 120,745 157,374
Net income ......................... 33,134 35,073 7,771 598 708
Net income per share (2) ........... $ 1.03 $ 1.04 $ .23 $ .02 $ .02
Weighted average number of
common and common equivalent
shares outstanding (2) ........... 32,028 33,665 34,254 33,616 36,643
</TABLE>
Mar. 29, 1997
-----------------------------
Actual As Adjusted(3)
------ --------------
Balance Sheet Data:
Working capital............................... $178,223 $273,672
Total assets.................................. 595,754 669,953
Notes payable (4) ............................ 56,198 35,498
Long-term obligations under capital
leases and debt............................. 14,418 13,968
Shareholders' equity.......................... 379,595 475,494
- ----------------------
(1) Based on the number of shares outstanding as of March 29, 1997. Assumes the
conversion of $1 million principal amount of the Company's Convertible
Debentures into 63,241 shares of Common Stock by a Selling Shareholder. Excludes
an additional 512,190 shares of Common Stock reserved for issuance upon
conversion of the Company's Convertible Debentures, 9,666,813 shares of Common
Stock reserved for issuance under the Company's stock option and incentive plans
(of which options to purchase 8,203,540 shares were outstanding as of March 29,
1997) and 1,273,710 shares reserved for issuance under the Company's Employee
Stock Purchase Plan. See Note 8 of "Notes to Consolidated Financial Statements."
(2) For an explanation of the number of shares used to compute net income per
share, see Note 1 of "Notes to Consolidated Financial Statements." In February
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" (SFAS 128) which requires
disclosure of basic earnings per share and diluted earnings per share and is
effective for periods ending subsequent to
3
<PAGE>
December 15, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Accounting Pronouncements."
(3) As adjusted to reflect the sale of 4,199,439 shares of Common Stock offered
by the Company hereby (at an assumed public offering price of $23 3/4 per share
and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company) and the application of the estimated
net proceeds therefrom and the conversion of $1 million principal amount 11 of
the Company's Convertible Debentures into Common Stock by a Selling Shareholder
prior to the sale of such shares in the offering. See "Use of Proceeds."
(4) Notes payable at March 29, 1997 excludes $10.3 million of additional
borrowings under the Company's revolving line of credit outstanding at June 28,
1997 and the repayment of such additional borrowings with proceeds from the
offering. See "Use of Proceeds."
4
<PAGE>
THE COMPANY
Sequent Computer Systems, Inc. ("Sequent" or the "Company") is a leading
provider of high-end scalable data-center-ready open systems solutions for large
organizations spanning diverse industries. The Company pioneered the development
of large-scale, Intel-based symmetric multiprocessing ("SMP") systems in the
1980s and has installed over 8,000 SMP systems worldwide. In 1996, Sequent was
first to market with large-scale cache coherent non-uniform memory access
("CC-NUMA") systems based on Intel's Pentium Pro architecture and designed to
run the UNIX operating system. Beginning in 1998, the Company plans to make the
Microsoft Windows NT operating system available on its NUMA-Q architecture. The
Company's products are used primarily as database servers for large on-line
transaction processing ("OLTP") and decision support systems ("DSS")/data
warehousing applications built with relational database management system
("RDBMS") software.
The success of large organizations in today's competitive markets is
largely dependent on their ability to identify and respond to changing business
conditions. Such organizations need to rapidly collect, organize, analyze,
process and store data throughout the enterprise to make effective business
decisions. The strategic use of information technology ("IT") is often critical
to creating and maintaining large centers of corporate data and effectively
manipulating it to gain competitive advantage. However, deploying
enterprise-wide data-center systems solutions is complex and often presents a
major challenge to corporate IT organizations, especially because of several
overlapping industry trends that have continually defined the market for such
systems.
Sequent's business strategy is to provide data-center-ready,
enterprise-wide systems that enable large organizations to manage and use
complex information. Sequent leverages the research and development efforts and
expenditures of industry-standard component suppliers by using their products
and applying its own expertise to design and build large, scalable
data-center-ready open systems.
Sequent sells its products and services worldwide through its direct sales
force, through distributors and, increasingly, through arrangements with systems
integrators. Sequent's direct sales efforts are focused on large organizations
with the goal of establishing and maintaining long-term "major account"
relationships. The Company maintains strategic relationships with leading
hardware and software providers that enable it to deliver complete
mission-critical IT solutions to its customers.
Sequent has enhanced its competitive position by providing consulting and
professional services to help large organizations identify complex IT problems
and develop solutions that combine Sequent's products with those of its RDBMS
partners and other open systems hardware and software providers. The Company's
high-end professional services capability has enabled Sequent to shift the focus
of its business from selling systems to offering solutions that combine systems
and services. Sequent's solution-oriented expertise is geared to RDBMS-based
offerings in three basic categories: custom OLTP; packaged business solutions
(financial, manufacturing and human resources applications); and large DSS/data
warehousing applications. Over the past five years, the knowledge and expertise
of Sequent's professional services organization have become key differentiators
for the Company, enabling Sequent to win a growing number of projects where the
sale of large systems follows or accompanies the sale of significant
professional services.
During 1996, Sequent made substantial investments in the continuing
development of its NUMA-Q technology and the expansion of its direct sales and
professional services organizations. From December 1995 to December 1996, the
Company increased the number of major account executives in its direct sales
organization by 54%, and increased the number of consultants in its professional
services organization by 38%. In late 1996, the Company shipped its first NUMA-Q
2000 systems.
The Company was incorporated in Delaware in January 1983 and was
reincorporated in Oregon in December 1988. Unless the context otherwise
requires, references in this Prospectus to the "Company" or "Sequent" refer to
the prior Delaware corporation and the current Oregon corporation and its
subsidiaries. The Company's principal executive offices are located at 15450
S.W. Koll Parkway, Beaverton, Oregon 97006, and its telephone number at that
location is (503) 626-5700.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus and in the
documents incorporated by reference herein, the following Risk Factors should be
carefully considered in evaluating the Company and its business before
purchasing the Common Stock offered by this Prospectus. The sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" in this Prospectus contain forward- looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the Risk Factors set forth below and
elsewhere in this Prospectus.
Fluctuations in Quarterly Results. The Company's results of operations have
fluctuated significantly from period to period, including on a quarterly basis.
The Company has historically experienced strong fourth-quarter orders and
revenue and relatively weak first-quarter orders and revenue from customers. A
significant portion of the Company's products are shipped in the quarter in
which the orders are received. The Company's backlog has historically been
relatively small and is not necessarily indicative of future sales levels. As is
the case with many high technology companies, a disproportionately large
percentage of a quarter's total sales occur in the last month and weeks and days
of such quarter. The Company's quarterly sales and operating results, therefore,
depend in large part on the volume and timing of orders received during the
quarter, which are difficult to forecast. Accordingly, the Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. As a result, any significant shortfall of demand for the Company's
products and services in relation to the Company's expectations could have an
immediate material adverse effect on the Company's business, operating results
and financial condition. Further, as the Company's sales to major accounts
continue to increase, the Company expects that a limited number of large sales
may account for a more significant portion of revenue in some quarters, creating
greater exposure to possible fluctuations in revenue. In addition, larger orders
typically involve substantially longer selling cycles, which makes quarterly
forecasts of sales more difficult.
The Company may experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including demand for the
Company's products, introduction or enhancement of products by the Company or
its competitors, market acceptance of new products (including its NUMA-Q
products), the timing of sales to large accounts, pricing pressures, the mix of
products sold and the mix between product and service revenue, lengthy sales
cycles, capital spending levels by customers, shipment interruptions due to
quality problems and general economic conditions. Because of all of the
foregoing factors, it is possible that in some future quarters the Company's
operating results will be below the expectations of securities analysts or
investors. In such event, the market price of the Company's Common Stock could
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business - Sales and
Distribution."
Recent Introduction of NUMA-Q; Product Concentration. During 1996, the
Company made significant investments in the continuing development of its NUMA-Q
products and the expansion of its sales organization to market this new product
line. Shipments of NUMA-Q products began in late 1996, and from late 1996
through the second quarter of 1997 the Company sold approximately 240 NUMA-Q
systems. By the second quarter of 1997, a majority of the Company's sales were
from NUMA-Q products, and the Company expects to become increasingly dependent
on revenue from sales of these products. Accordingly, broad customer acceptance
of NUMA-Q products is critical to the Company's success. NUMA-Q is a new
architecture that has not yet been widely implemented and has not yet gained
widespread customer acceptance. Because the Company has only recently begun
shipping NUMA-Q products, there can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found in
NUMA-Q products, or, if discovered, such errors will be successfully corrected
in a timely and cost-effective manner. The Company's business, operating results
and financial condition could be materially adversely affected if NUMA-Q
products fail to gain customer acceptance, sales of these products are lower
than anticipated by the Company, competitive products are introduced or
significant hardware or software errors are found in these systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Competition. The computer business is intensely competitive. The Company
competes with a number of companies that have considerably greater financial,
marketing, technical and operating resources. The Company
6
<PAGE>
competes with, among others, Hewlett-Packard Company ("Hewlett-Packard"),
Digital Equipment Corporation ("DEC"), International Business Machines
Corporation ("IBM") and Sun Microsystems, Inc. ("Sun"), which have large
installed customer bases in many of the markets addressed by the Company. All of
these companies offer products that compete with Sequent's products. Silicon
Graphics, Inc. ("SGI") and Data General Corporation ("Data General") have
already introduced products based on CC-NUMA technology and other companies are
believed to be developing products based on CC-NUMA technology. Most also have
large professional services organizations and alliances with many hardware and
software vendors with which Sequent has strategic relationships. No assurances
can be given that the Company will have the financial resources, marketing,
distribution and service organizations, technical capabilities or depth of key
personnel necessary to compete successfully in the future. See "Business -
Competition."
Product Development. The computer industry is subject to rapid and
significant technological change and frequent introductions of new competitive
products. To remain competitive, the Company will be required to continue to
invest substantially in research and development, enhance its existing products
(including its NUMA-Q products), introduce new competitive products and maintain
price/performance advantages in its selected markets. There can be no assurance
that it will be able to respond adequately to unexpected technological changes
in its markets or that future products will be successful.
Strategic Relationships. The Company has developed strategic relationships
with leading hardware and software providers and is engaged in joint research
and product development and marketing arrangements with these companies. The
Company's ability to enhance its existing NUMA-Q products and develop new
products is significantly dependent on maintaining and strengthening the
Company's relationships with these companies, particularly with Intel
Corporation ("Intel"), Microsoft Corporation ("Microsoft") and Oracle
Corporation ("Oracle"). Many of these hardware and software vendors also have
significant development and marketing relationships with the Company's
competitors. The Company plans to continue its strategy of developing technology
and marketing relationships with these and other leading hardware and software
vendors. There can be no assurance that the Company will be successful in its
ongoing strategic relationships or that the Company will be able to find
additional suitable business relationships as it develops new products. Any
failure to continue or expand such relationships could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company's strategic partners, most of which
have significantly greater financial and marketing resources than the Company,
will not develop and market products in competition with the Company in the
future, discontinue their relationships with the Company or form or strengthen
arrangements with the Company's competitors. See "Business - Platform Overview"
and "- Strategic Relationships with Leading Vendors."
Supply of Components. Certain components used by the Company, including
Intel microprocessors, custom VLSI gate arrays and intelligent high-speed data
switches (IQ-Link), are only available from single sources. The Company attempts
to reduce the risk of supply interruption through greater inventory positions in
sole-source components. Other components, such as memory chips, have
occasionally been in short supply throughout the industry. Failure to obtain
sole-source or other parts and components in adequate quantities on a timely
basis could increase costs or delay shipments and have an adverse effect on the
Company's revenues and net income. The adverse effect of a supplier's failure to
meet Sequent's requirements may be intensified by the fact that a large portion
of orders are received, and the products shipped, at the end of a quarter. See
"Business - Manufacturing."
Capitalization of Software Development Costs. The Company has made and
continues to make significant investments in software development. The amount of
expenditures that qualify for capitalization under Statement of Financial
Accounting Standards No. 86 "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed" may vary from period to period as software
projects progress through the development life- cycle. These variations could
impact the Company's operating results in any given period. Unamortized software
development costs were approximately $61.8 million at March 29, 1997. If
technological developments or other factors were to jeopardize the realizability
of such assets, the Company could be required to write off all or a substantial
portion of such capitalized values, which could have a material adverse effect
on the Company's results of operations for the period in which the write-off
occurs. See "Management's Discussion of Financial Condition and Results of
Operations" and Note 1 of "Notes to Consolidated Financial Statements."
7
<PAGE>
Inventory Obsolescence; Prepaid Licenses. The Company expects sales of
Symmetry products to continue to decline as NUMA-Q products gain market
acceptance. At March 29, 1997, the Company's balance sheet reflected
approximately $47 million of Symmetry inventory net of reserves. The Company
expects to increase the reserves for the period ended June 28, 1997. Based upon
current sales forecasts, the Company expects that substantially all of the
Symmetry inventory will be sold and that no significant write-offs in excess of
reserves will be required. However, if Symmetry sales decline more rapidly than
expected, write-offs of the Symmetry inventory could be required, which could
have a material adverse effect on the Company's results of operations. The
Company has entered into agreements with various software vendors under which
the Company has prepaid licenses and royalties for software to be sold by the
Company. Prepaid licenses and royalties were approximately $29 million at March
29, 1997. Such prepaid amounts are generally realized by charging cost of
products sold for software sales by the Company. The Company's ability to
realize these prepaid amounts is contingent on customer demand for the software
and sales of the software to Sequent's customers. Management presently believes
that software sales will be sufficient to recover the prepaid amount. However,
no assurance can be made that such prepaid amounts will be realized. See "Risk
Factors - Recent Introduction of NUMA-Q; Product Concentration."
Uncertain Protection of Intellectual Property. The Company's success and
ability to compete is dependent in part upon its internally developed
technology. While the Company relies on patent, trademark, trade secret and
copyright law to protect its technology, the Company believes that factors such
as the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are more essential to establishing and maintaining a
technology leadership position. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology.
The Company generally enters into confidentiality or license agreements with its
employees, consultants and vendors and generally seeks to control access to and
distribution of its proprietary information. Despite these precautions, it may
be possible for a third party to copy or otherwise obtain and use the Company's
products or technology without authorization, or to develop similar technology
independently. There can be no assurance that the steps taken by the Company
will prevent misappropriation of its technology or that such confidentiality and
license agreements will be enforceable.
Periodically, the Company has received, and may receive in the future,
notices of claims of infringement of other parties' proprietary rights. Although
the Company does not believe that its products infringe the proprietary rights
of any third parties, there can be no assurance that infringement or invalidity
claims (or claims for indemnification resulting from infringement claims) will
not be asserted or prosecuted against the Company or that any such assertions or
prosecutions (including the costs of litigation) will not materially adversely
affect the Company's business, operating results and financial condition. If any
claims or actions are asserted against the Company, the Company may seek to
license a third party's intellectual property rights. There can be no assurance,
however, that under such circumstances, a license would be available on
reasonable terms or at all. See "Business Patents and Licenses."
Availability of Key Personnel; Expansion of Sales Force. The Company's
continued growth depends upon its ability to attract, integrate and retain
qualified management, technical and sales and support personnel for its
operations. During 1996 and the first quarter of 1997, the Company significantly
expanded its sales force, from 174 sales personnel as of December 31, 1995 to
255 sales personnel as of March 29, 1997. A significant portion of the Company's
sales force at March 29, 1997 had been employed by the Company for less than one
year. Competition for such personnel is intense, and the Company may find it
difficult to attract such personnel in a timely and efficient manner or to
retain and integrate such personnel. This competition could adversely affect the
Company's ability to expand and manage its sales force to sell its NUMA-Q
products and professional services to large accounts and to develop marketing
relationships with large systems integrators. See "Business - Consulting and
Professional Services" and "- Sales and Distribution."
Manufacturing Risks. The Company's products are designed and manufactured
for high reliability. If flaws in design, production, assembly or testing occur
on the part of Sequent or its suppliers, Sequent may experience a rate of
failure in its products that results in substantial repair or replacement costs
and potential damage to its reputation. There can be no assurance that Sequent's
efforts to monitor, develop and implement appropriate test and manufacturing
processes for its products will be sufficient to permit Sequent to avoid a rate
of failure in its products that results in substantial delays in shipment,
significant repair or replacement costs and potential damage
8
<PAGE>
to Sequent's reputation, any of which could have a material adverse effect on
Sequent's business, operating results and financial condition. See "Business -
Manufacturing."
International Operations. The Company derived 55% of its total revenues
from foreign customers in the year ended December 28, 1996, a substantial
portion of which was denominated in currencies other than U.S. dollars. Most of
the Company's international sales are in Europe. International operations are
subject to various risks, including exposure to currency fluctuations, the
greater difficulty of administering business abroad and the need to comply with
a wide variety of international and United States export laws and regulatory
requirements. See "Business - Sales and Distribution."
Volatility of Stock Prices. There has been a history of significant
volatility in the market prices of the Common Stock of electronics companies,
including that of the Company, and it is likely that the market price of the
Company's Common Stock will continue to be subject to significant fluctuations.
Factors such as the timing and market acceptance of new product introductions by
the Company, the introduction of new products by the Company's competitors,
variations in quarterly operating results, changes in securities analysts'
recommendations regarding the Company's Common Stock, developments in the
electronics industry and general economic conditions may have a significant
impact on the market price of the Company's Common Stock. In addition, the
equity markets in recent years have experienced significant price and volume
fluctuations that have affected the market prices of technology companies and
that have often been unrelated to the operating performance of such companies.
See "Price Range of Common Stock."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,199,439 shares of
Common Stock offered by the Company hereby (at an assumed public offering price
of $23 3/4 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company) are
estimated to be approximately $94.9 million ($112.8 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of shares by the Selling Shareholders.
The purpose of the offering by the Company is to obtain additional capital
to fund the growth of the Company. The Company intends to use approximately $31
million of the net proceeds to repay borrowings under its revolving credit
agreement with a bank. Such revolving line of credit is unsecured, bears
interest either (i) at the prime rate or (ii) at the option of the Company, at
one month LIBOR plus (a) 1.25% per annum with respect to borrowings up to $30.0
million and (b) 1.50% per annum with respect to borrowings in excess of $30.0
million (7.2% as of June 28, 1997) and extends through May 29, 1998. At June 28,
1997, $30.8 million was outstanding under the line of credit. The Company
intends to use the balance of the net proceeds for general corporate purposes,
including working capital, product development and capital expenditures. A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. The Company has no current plans, agreements or commitments with
respect to any such acquisition or investment, and the Company is not currently
engaged in any negotiations with respect to any such transaction. Pending such
uses, the net proceeds will be invested in investment grade, short-term,
interest-bearing securities and the Company may use a portion of the net
proceeds from the offering to collateralize its proposed facilities financing
transactions. See "Business - Facilities."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock,
and does not anticipate paying cash dividends in the foreseeable future. In
addition, the Company's bank line of credit agreement and the agreements
relating to the Company's Convertible Debentures prohibit payment of dividends
without the lenders' consent.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "SQNT." The following table sets forth, for the periods indicated,
the high and low closing sale prices for the Common Stock as reported by the
Nasdaq National Market:
High Low
---- ---
Fiscal 1995:
First Quarter................................... $ 20 5/8 $ 15 9/16
Second Quarter.................................. 18 5/8 14 7/16
Third Quarter................................... 25 1/4 17 7/8
Fourth Quarter.................................. 19 1/2 14 3/8
Fiscal 1996:
First Quarter................................... 14 7/8 10 5/16
Second Quarter.................................. 14 7/8 11 7/8
Third Quarter................................... 13 7/8 10 7/8
Fourth Quarter.................................. 18 1/4 12 1/2
Fiscal 1997:
First Quarter................................... 20 14 1/2
Second Quarter.................................. 21 5/8 14 3/4
Third Quarter (through July 11, 1997)........... 23 3/4 20 7/8
On July 11, 1997, the last reported sale price for the Company's Common
Stock on the Nasdaq National Market was $23 3/4 per share. At March 29, 1997,
the Company had approximately 1,044 holders of record of the Common Stock.
10
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, notes payable
and capitalization of the Company as of March 29, 1997, and as adjusted to
reflect the sale of 4,199,439 shares of Common Stock offered by the Company
hereby (at an assumed public offering price of $23 3/4 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company) and the application of the net
proceeds therefrom, and the conversion of $1 million principal amount of
Convertible Debentures into 63,241 shares of Common Stock by a Selling
Shareholder.
<TABLE>
<CAPTION>
Mar. 29, 1997
------------------------------
Actual As Adjusted
-------- -------------
(in thousands, except share data)
<S> <C> <C>
Cash and cash equivalents ..................................... $ 35,941 $ 110,140
========= =========
Notes payable (1) ............................................. 56,198 35,498
========= =========
Long-term obligations under capital leases
and debt including current portion ...................... 23,396 22,396
Shareholders' equity:
Preferred Stock, 5,000,000 shares authorized; 1,500,000
shares of Series A Convertible authorized; no shares
outstanding ............................................ -- --
Common Stock, $.01 par value, 100,000,000 shares
authorized; 34,840,000 shares outstanding; 39,103,000
shares outstanding as adjusted (2) ..................... 348 391
Paid-in capital .......................................... 322,458 418,314
Retained earnings ........................................ 61,423 61,423
Foreign currency translation adjustment .................. (4,634) (4,634)
--------- ---------
Total shareholders' equity .................. 379,595 475,494
--------- ---------
Total capitalization ..................... $ 402,991 $ 497,890
========= =========
- ------------------
<FN>
(1) Notes payable at March 29, 1997 excludes $10.3 million of additional
borrowings under the Company's revolving line of credit outstanding at June
28, 1997 and the repayment of such additional borrowings. See "Use of
Proceeds."
(2) Shares outstanding exclude 512,190 shares of Common Stock reserved for
issuance upon conversion of the Company's Convertible Debentures that will
not be converted in connection with the offering, 9,666,813 shares of
Common Stock reserved for issuance under the Company's stock option and
incentive plans (of which options to purchase 8,203,540 shares were
outstanding as of March 29, 1997), and 1,273,710 shares of Common Stock
reserved for future issuance under the Company's Employee Stock Purchase
Plan. See Note 8 of "Notes to Consolidated Financial Statements."
</FN>
</TABLE>
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations data and balance sheet data for the Company. The statement of
operations data for each of the five fiscal years ended December 28, 1996, and
the related balance sheet data are derived from the Company's consolidated
financial statements, which have been audited by Price Waterhouse LLP,
independent accountants. The selected consolidated financial data shown below as
of and for the three months ended March 30, 1996 and March 29, 1997 have been
derived from the unaudited consolidated financial statements of the Company
which, in the opinion of management, include all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of such interim
periods. The selected historical consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company included in this Prospectus. The results for the three months ended
March 29, 1997 are not necessarily indicative of results that may be expected
for the full year.
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended
-------------------------------------------------------------- ------------------------
Jan. 2, Jan. 1, Dec. 31, Dec. 30, Dec. 28, Mar. 30, Mar. 29,
1993 1994 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Product ........................... $ 252,093 $ 280,579 $ 341,504 $ 395,941 $ 414,418 $ 81,109 $ 105,567
--------- --------- --------- --------- --------- --------- ---------
Service ........................... 55,181 73,227 109,319 144,404 180,944 39,636 51,807
--------- --------- --------- --------- --------- --------- ---------
Total revenue ................... 307,274 353,806 450,823 540,345 595,362 120,745 157,374
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Cost of products sold ............. 109,780 133,294 164,991 188,232 197,702 38,653 50,455
Cost of service revenue ........... 39,845 49,988 77,238 107,721 139,983 30,611 38,799
Research and development .......... 28,125 28,944 35,047 40,923 53,733 12,262 15,442
Selling, general and administrative 108,974 122,537 134,070 154,950 191,069 38,245 50,250
Restructuring charges ............. -- 22,307 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses ........ 286,724 357,070 411,346 491,826 582,487 119,771 154,946
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) ............. 20,550 (3,264) 39,477 48,519 12,875 974 2,428
Interest income (expense), net ...... (3,735) (1,655) (1,172) 1,133 (180) 213 (1,250)
Other income (expense), net ......... (931) (1,412) 495 (2,325) (2,019) (363) (142)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision
for income taxes .................. 15,884 (6,331) 38,800 47,327 10,676 824 1,036
Provision for income taxes .......... 1,451 1,193 5,666 12,254 2,905 226 328
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ................... $ 14,433 $ (7,524) $ 33,134 $ 35,073 $ 7,771 $ 598 $ 708
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share (1) ... $ .55 $ (5.26) $ 1.03 $ 1.04 $ .23 $ .02 $ .02
========= ========= ========= ========= ========= ========= =========
Weighted average number of common
and common equivalent shares
outstanding (1) ................. 26,120 29,335 32,028 33,665 34,254 33,616 36,643
</TABLE>
<TABLE>
<CAPTION>
Jan. 2, Jan. 1, Dec. 31, Dec. 30, Dec. 28, Mar. 29,
1993 1994 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital...................... $ 86,914 $134,156 $168,468 $214,749 $183,428 $178,223
Total assets......................... 278,759 375,424 435,977 503,923 612,009 595,754
Notes payable........................ 28,645 32,279 59,437 41,146 59,925 56,198
Long-term obligations under capital
leases and debt..................... 24,034 10,906 10,341 9,106 16,503 14,418
Shareholders' equity................. 172,502 243,488 291,195 353,188 374,809 379,595
</TABLE>
- ---------------------------------
12
<PAGE>
(1) For an explanation of the number of shares used to compute net income per
share, see Note 1 of "Notes to Consolidated Financial Statements." In
February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128)
which requires disclosure of basic earnings per share and diluted earnings
per share and is effective for periods ending subsequent to December 15,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Accounting Pronouncements."
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to the other information in this Prospectus and in the
documents incorporated by reference herein, the following discussion should be
carefully considered in evaluating the Company and its business before
purchasing the Common Stock offered by this Prospectus. The sections entitled
"Risk Factors" and "Business" in this Prospectus contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth below and
elsewhere in this Prospectus.
Recent Developments
The Company's second quarter of fiscal 1997 ended on June 28, 1997. The
Company estimates that revenues for the quarter will be in the range of $205
million to $210 million and net income will be in the range of $7.5 million to
$8.5 million, representing between $.20 and $.23 per share.
On July 14, 1997, the Company announced the signing of a master contract
with The Boeing Company ("Boeing") for the purchase of NUMA-Q systems and
professional services from Sequent over a 12-month period. The Company has
received initial purchase orders from Boeing under the contract for $59 million,
of which approximately $36 million is expected to be included in revenues for
the second quarter of fiscal 1997. The master contract also provides Boeing with
options to purchase an additional $46 million of products and services through
March 1998.
The Sequent systems sold and to be sold under the Boeing contract include
disk storage subsystems manufactured by EMC Corporation and tape libraries
manufactured by Storage Technology Corp. In addition to providing database
servers for the project, Sequent is providing architectural design and
implementation expertise through its on-site team of professional services
consultants. Accordingly, margins on revenues from the Boeing contract are
expected to be lower than the Company's overall margin levels during the last
year due to the mix of products and services and the size of the contract.
Results of Operations
Year Ended 1996 Compared with Year Ended 1995
and Year Ended 1995 Compared with Year Ended 1994
Overview. Total revenue was $595.4 million in 1996 compared to $540.3
million in 1995 and $450.8 million in 1994. The Company recorded net income in
1996 of $7.8 million, compared to $35.1 million in 1995 and $33.1 million in
1994. The Company's total revenue for 1996 represented a 10% increase over 1995
and is attributed to significant increases in customer and professional service
revenues in 1996 over 1995. The Company's service revenue increased 25% in 1996
over 1995 as a result of a growing number of customer installation bases and
related service contracts, as well as an increase in the number of project-based
sales. The decrease in net income in 1996 compared to 1995 was the result of the
heavy investment made in 1996 to bring the next-generation NUMA-Q product to
market in December 1996 and expand the sales and professional services
organizations to leverage the capability of the new technology.
14
<PAGE>
The following table sets forth certain operating data as a percentage of
total revenue:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
--------- -------- ----------
<S> <C> <C> <C>
Revenue:
End-user products ............................ 70.6% 69.4% 68.5%
OEM products ................................. 5.1 3.9 1.1
Service ...................................... 24.3 26.7 30.4
--------- -------- --------
Total revenue.............................. 100.0 100.0 100.0
Cost of products and service ................... 53.7 54.8 56.7
--------- -------- --------
Gross profit...... ............................. 46.3 45.2 43.3
Operating expenses:
Research and development..................... 7.8 7.5 9.0
Selling, general and administrative.......... 29.7 28.7 32.1
--------- -------- --------
Total operating expenses................... 37.5 36.2 41.1
--------- -------- --------
Operating income ............................... 8.8 9.0 2.2
Interest income (expense), net ................. (0.3) 0.2 0.0
Other income (expense), net .................... 0.1 (0.4) (0.4)
--------- -------- --------
Income before provision for income taxes........ 8.6 8.8 1.8
Provision for income taxes ..................... 1.3 2.3 0.5
--------- -------- --------
Net income ..................................... 7.3% 6.5% 1.3%
========= ======== ========
</TABLE>
Revenue. End-user product revenue increased $32.8 million, or 9%, from 1995
to 1996 and $56.7 million, or 18%, from 1994 to 1995. These increases were
primarily in the Company's North American and Asia-Pacific geographic regions.
The revenue growth rate from 1995 to 1996 was impacted by the Company's product
transition from its Symmetry line to its next-generation NUMA-Q systems,
especially in the second half of 1996. Despite the ongoing demand for Symmetry
systems that are binary compatible with the NUMA-Q technology, the awareness of
the pending release of the new product adversely affected Symmetry sales during
1996. Volume shipments of NUMA-Q began late in the fourth quarter of 1996.
As anticipated, total OEM revenue continued to decline in 1996 compared to
1995 and 1994 due to decreases in revenue from Unisys. Total OEM revenue in 1996
and 1995 was $6.5 million and $20.9 million, respectively, compared to $23.1
million in 1994.
During 1996 and 1995, the Company's customer and professional service
revenue continued to increase in dollar amount and as a percentage of total
revenue primarily due to the growth in customer installation bases and
associated customer service/maintenance contracts, as well as a focus on selling
more solutions.
The Company has continued to benefit from its significant investment in
developing worldwide sales and distribution channels. International revenue as a
percentage of total revenue was 55% in 1996 and 1995, increasing from 48% in
1994. The majority of the international revenue was from Europe (particularly
the United Kingdom), with the balance coming from Asia-Pacific and Canada.
Cost of Sales.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Cost of products sold as a percentage of product revenue...... 48% 48% 48%
Cost of service as a percentage of service revenue............ 71 75 77
Total cost of sales as a percentage of total revenue.......... 54 55 57
</TABLE>
The factors influencing gross margins in a given period include unit
volumes (which affect economies of scale), product configuration mix, changes in
component and manufacturing costs, product pricing and the mix between product
and service revenue.
Total cost of sales as a percentage of total revenue increased both in 1996
and 1995 primarily due to lower margin service increasing as a percentage of
total revenue. As planned, the Company invested in expanding its
15
<PAGE>
professional service organization, which has contributed to the overall increase
of cost of service as a percentage of service revenue. The Company increased
headcount in its professional service organization by approximately 38% in 1996.
Research and Development.
<TABLE>
<CAPTION>
(dollars in millions) Fiscal Year Ended
-----------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Research and development expense.............................. $35.0 $40.9 $53.7
As a percentage of total revenue.............................. 8% 8% 9%
Software costs capitalized.................................... $19.1 $23.4 $34.2
</TABLE>
Research and development expense increased 31% in 1996 compared to 1995 and
17% in 1995 compared to 1994. The Company continued to invest significantly in
its new NUMA-Q architecture and software development, in addition to ongoing
enhancements to existing products. Consistent with management's plans, the
NUMA-Q products began shipping in the Company's fourth quarter of 1996. Research
and development costs as a percentage of total revenue were approximately 9% in
1996, compared to 8% for 1995 and 1994. Management intends to make significant
investments during 1997 as it continues to enhance its NUMA-Q product line.
Capitalized software amortization was approximately $20.0 million, $16.6
million and $12.8 million in 1996, 1995 and 1994, respectively. The Company has
continued to increase its focus on software design for computing solutions and
its next-generation products, resulting in greater investments in software
development and products.
Selling, General and Administrative.
<TABLE>
<CAPTION>
(dollars in millions) Fiscal Year Ended
-----------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Selling, general and administrative........................... $134.1 $155.0 $191.1
As a percentage of total revenue.............................. 30% 29% 32%
</TABLE>
The Company's selling, general and administrative costs increased both in
dollars and as a percentage of revenue in 1996, as the Company made significant
investments in its worldwide sales force for successful delivery of NUMA-Q at
the end of 1996. During the year, the Company increased the number of major
account executives by 54% worldwide.
Interest and Other, Net.
<TABLE>
<CAPTION>
(dollars in millions) Fiscal Year Ended
--------------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- ---------- ------------
<S> <C> <C> <C>
Interest income............................................... $3.5 $5.3 $3.0
Interest expense.............................................. $4.7 $4.2 $3.2
Other income (expense), net................................... $0.5 $(2.3) $(2.0)
</TABLE>
Interest income is primarily generated from restricted deposits held at
foreign and domestic banks, short-term investments and cash and cash
equivalents. Interest expense includes costs related to convertible debentures,
foreign currency hedging loans, interim short-term borrowings and capital lease
obligations.
Other expense consists primarily of net gains and losses on sales of assets
and discount on sale of receivables.
Income Taxes. The Company provided $2.9 million for income taxes in 1996 on
a net profit before tax of $10.7 million. The difference between the statutory
rate and the effective tax rate is principally due to the benefit from the
Company's foreign sales corporation. The 1996 effective tax rate of 27.2%
compares to effective rates of 25.9% in 1995 and 14.6% in 1994.
16
<PAGE>
Three Months Ended March 29, 1997
Compared with Three Months Ended March 30, 1996
Overview. Total revenue was $157.4 million in the first quarter of 1997
compared to $120.7 million in the first quarter of 1996. Net income was $0.7
million in the first quarter of 1997 compared to $0.6 million in the first
quarter of 1996. Factors contributing to the 30% increase in total revenue in
the first quarter of 1997 compared to the same period in 1996 included sales
from the Company's new NUMA-Q 2000 product line and an overall increase in the
number and size of new projects. Net income was roughly flat in the first
quarter of 1997 compared to the first quarter in 1996 and is attributed to
continued significant levels of R&D and SG&A spending as a percentage of
revenue. The expenses reflect the increase in sales and professional service
headcount in 1996 as well as continued investment in research and development
and other expenses related to the worldwide rollout of the Company's new product
line, NUMA-Q 2000.
The following table sets forth certain operating data as a percentage of
total revenue:
Three months ended
------------------------------
Mar. 30, Mar. 29,
1996 1997
---------- ---------
Revenue:
End-user products....................... 63.1% 64.5%
OEM products............................ 4.1 2.6
Service................................. 32.8 32.9
-------- -------
Total revenue........................ 100.0 100.0
Cost of products and service................. 57.4 56.7
-------- -------
Gross profit................................. 42.6 43.3
Operating expenses:
Research and development................ 10.2 9.8
Selling, general and administrative..... 31.6 32.0
-------- -------
Total operating expenses............. 41.8 41.8
-------- -------
Operating income............................. 0.8 1.5
Interest income (expense), net............... 0.2 (0.8)
Other income (expense), net.................. (0.3) (0.1)
-------- -------
Income before provision for income taxes..... 0.7 0.6
Provision for income taxes................... 0.2 0.2
-------- -------
Net income................................... 0.5% 0.4%
======== =======
Revenue. The Company's product sales increased significantly in the first
quarter of 1997 over the same period in 1996. Factors contributing to this
increase include continued year-to-year growth in the number and size of
projects, as well as a strong demand for the Company's new NUMA-Q product line,
which was formally introduced in February 1997. Sales of NUMA-Q products
represented 34% of total product revenue in the first quarter of 1997. Strong
growth in the number and size of project sales which included services
contributed to the 31% increase in service revenue in the first quarter of 1997
compared to the same period in 1996. The Company has continued to see growth in
its foreign operations. International revenue was $79.7 million in the first
quarter of 1997 compared to $64.0 million in the first quarter of 1996. The
majority of this increase is from operations in the United Kingdom. As expected,
OEM revenue has continued to decline as a percentage of total revenue as the
Company has focused its investment into its direct sales organization and
indirect channels other than OEM partners.
Cost of Sales. The Company's overall product gross margins were
approximately 52% for the first quarter of 1997 as well as the first quarter of
1996. Included in product margins in the first quarter of 1997 were favorable
margins from sales of the Company's new NUMA-Q product line. These margins were
partially offset by lower margin sales of the Company's Symmetry products. The
Company's service gross margins increased slightly in the first quarter of 1997
over the same period in 1996. Factors contributing to the increase included
pricing and mix of service offerings between customer and professional service,
as well as overall growth in service revenue. The Company expanded its
professional services organization significantly during 1996 which has
contributed to the increase in cost of service revenue in the first quarter of
1997 over the same period in 1996. The Company
17
<PAGE>
increased its professional services headcount by approximately 23% since the
first quarter in 1996. Professional service revenue increased approximately 33%
in the first quarter of 1997 compared to the same period in 1996.
Research and Development. Consistent with management's plans, the Company
has continued to invest significantly in its new NUMA-Q architecture and
software development, as well as ongoing enhancements to existing products.
Research and development expense as a percentage of total revenue was 10% in
both the first quarter of 1997 and 1996, compared to 9% for the fiscal year 1996
and 8% for 1995. The Company intends to continue with substantial investments
over the remainder of 1997 to enhance its new NUMA-Q 2000 product line which was
first shipped to customers in late 1996.
Selling, General and Administrative. Selling, general and administrative
expenses were $50.2 million and $38.2 million for the three months ended March
29, 1997 and March 30, 1996, respectively. This increase is the result of
investments made by the Company for the worldwide rollout of its new NUMA-Q
product line, which was first shipped to customers in late 1996. In 1996, the
Company expanded its sales organization through significant increases in
headcount. At March 29, 1997, the number of sales executives was approximately
250 compared to 194 at March 30, 1996. As a percentage of revenue, selling,
general and administrative expenses have remained relatively flat compared to
the first quarter of 1996.
Interest and Other, Net. Interest income is primarily generated from
restricted deposits held at foreign and domestic banks, short-term investments
and cash and cash equivalents. Interest expense includes costs related to
convertible debentures, foreign currency hedging loans, interim short-term
borrowing and capital lease obligations. Interest income and expense for the
first quarter of 1997 was $0.7 million and $1.9 million respectively, and $0.9
million and $0.7 million for the same period in 1996. The Company's use of funds
for its continued investment in its new NUMA-Q product line is a factor in the
increase in interest expense in the first quarter of 1997 over the same period
in 1996.
Other expense consists primarily of net gains and losses on sale of assets
and discount on sale of receivables.
Income Taxes. The provision for income taxes includes benefits related to
the Company's foreign sales corporation and the utilization of available
domestic and foreign tax attributes carried forward from prior years. The
effective tax rate for the first quarter of 1997 was 32%, compared to 27% for
the corresponding period in 1996 and overall annual effective tax rate for 1996.
The increase in the rate is due mainly to limited tax attribute carryforwards
available in fiscal year 1997 and the dilution of permanent tax benefits such as
the foreign sales corporation due to differences in pre-tax earnings year over
year.
Liquidity and Capital Resources
Working capital was $178.2 million at March 29, 1997 compared to $183.4
million at December 28, 1996. The Company's current ratio at March 29, 1997 and
December 28, 1996 was 1.9:1.
Although net cash provided by operating activities for the year ended
December 28, 1996 totaled $64.1 million, cash and cash equivalents decreased by
$24 million. The Company continued to make significant investments in property
and equipment ($80.6 million), inventory ($13.6 million) and capitalized
software ($34.2 million), primarily related to product and software development
associated with its new NUMA-Q product line. Other investments included
approximately $27 million in software licenses resulting from a long-term
strategic partner alliance, of which approximately $15 million is included in
prepaid royalties and other current assets. Other sources of funds included net
proceeds of stock issuances ($11 million), notes payable ($18.8 million) and
capital lease transactions ($14.7 million).
Although net cash provided by operating activities during the three months
ended March 29, 1997 totaled $12.9 million, cash and cash equivalents decreased
by $2.0 million. The Company continued to make significant investments in
property and equipment ($19.2 million), inventories ($10.3 million) and
capitalized software ($8.4 million), primarily related to product and software
development associated with its new NUMA-Q product line. Sources of funds
primarily included net decreases in accounts receivable ($24.0 million) and net
proceeds from issuances of stock ($7.0 million).
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<PAGE>
The Company has a $20.0 million receivable sales facility with a group of
banks that extends through May 29, 1998. At March 29, 1997, accounts receivable
in the accompanying consolidated balance sheet is net of $20 million received by
the Company under this agreement to sell its domestic accounts receivable.
The Company maintains an $80.0 million revolving line of credit agreement.
The line is unsecured and extends through May 29, 1998. The line contains
certain financial covenants and prohibits the Company from paying dividends
without the lenders' consent. At March 29, 1997, $20.5 million was outstanding
under the line of credit.
The Company maintains a short-term borrowing agreement with a foreign bank
to cover foreign currency exposures. Maximum borrowings allowed under the
foreign bank agreement were $54.3 million, of which $31.9 million was
outstanding at March 29, 1997 (based on currency exchange rates on such date).
The Company also maintains miscellaneous borrowing arrangements with a
foreign bank. At March 29, 1997, $1.6 million was outstanding under this
agreement.
In addition to the above, a subsidiary of the Company issued short-term
convertible notes during 1996 totaling $2.2 million, which are outstanding at
March 29, 1997.
Management expects that current funds, funds from operations and the bank
lines of credit, together with the net proceeds from the sale of Common Stock
offered hereby will provide adequate resources to meet the Company's anticipated
operational cash requirements for at least the next 12 months.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128) which
requires disclosure of basic earnings per share and diluted earnings per share
and is effective for periods ending subsequent to December 15, 1997. The pro
forma effect of adoption of SFAS 128 is included in the table below.
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended
---------------------------------- -----------------------
Mar. 30, Mar. 29,
1994 1995 1996 1996 1997
--------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
As reported:
Net income per share...................................... $ 1.03 $ 1.04 $ .23 $ .02 $ .02
======== ========= ========= ========== ===========
Weighted average number of common and common equivalent
shares outstanding...................................... 32,028 33,665 34,254 33,616 36,643
======== ========= ========= ========== ===========
Pro forma:
Basic net income per share................................ $ 1.08 $ 1.09 $ .23 $ .02 $ .02
======== ========= ========= ========== ===========
Weighted average number of common shares outstanding...... 30,783 32,228 33,641 33,298 34,427
======== ========= ========= ========== ===========
Diluted net income per share.............................. $ 1.03 $ 1.04 $ .23 $ .02 $ .02
======== ========= ========= ========== ===========
Weighted average number of common and common equivalent
shares outstanding...................................... 32,349 34,114 34,419 33,616 36,675
======== ========= ========= ========== ===========
</TABLE>
19
<PAGE>
BUSINESS
In addition to the other information in this Prospectus and in the
documents incorporated by reference herein, the following discussion should be
carefully considered in evaluating the Company and its business before
purchasing the Common Stock offered by this Prospectus. The sections entitled
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in this Prospectus contain forward- looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934. Actual results
could differ materially from those projected in the forward- looking statements
as a result of the factors set forth below and elsewhere in this Prospectus.
Sequent is a leading provider of high-end scalable data-center-ready open
systems solutions for large organizations spanning diverse industries. The
Company pioneered the development of large-scale, Intel-based symmetric
multiprocessing ("SMP") systems in the 1980s and has installed over 8,000 SMP
systems worldwide. In 1996, Sequent was first to market with large-scale cache
coherent non-uniform memory access ("CC-NUMA") systems based on Intel's Pentium
Pro architecture and designed to run the UNIX operating system. Beginning in
1998, the Company plans to make the Microsoft Windows NT operating system
available on its NUMA-Q architecture. The Company's products are used primarily
as database servers for large on-line transaction processing ("OLTP") and
decision support systems ("DSS")/data warehousing applications built with
relational database management system ("RDBMS") software.
Sequent sells its products and services worldwide through its direct sales
force, through distributors and, increasingly, through arrangements with systems
integrators. Sequent's direct sales efforts are focused on large organizations
with the goal of establishing and maintaining long-term "major account"
relationships. The Company maintains strategic relationships with leading
hardware and software providers that enable it to deliver complete
mission-critical information technology ("IT") solutions to its customers.
Sequent has enhanced its competitive position by providing consulting and
professional services to help large organizations identify complex IT problems
and develop solutions that combine its products with those of its RDBMS partners
and other open systems hardware and software providers. The Company's high-end
professional services capability has enabled Sequent to shift the focus of its
business from selling systems to offering solutions that combine systems and
services. Sequent's solution-oriented expertise is geared to RDBMS-based
offerings in three basic categories: custom OLTP; packaged business solutions
(financial, manufacturing and human resources applications); and large DSS/data
warehousing applications. Over the past five years, the knowledge and expertise
of Sequent's professional services organization have become key differentiators
for the Company, enabling Sequent to win a growing number of projects where the
sale of large systems follows or accompanies the sale of significant
professional services contracts.
During 1996, Sequent made substantial investments in the continuing
development of its NUMA-Q technology and the expansion of its direct sales and
professional services organizations. From December 1995 to December 1996, the
Company increased the number of major account executives in its direct sales
organization by 54%, and increased the number of consultants in its professional
services organization by 38%. In late 1996, the Company shipped its first NUMA-Q
2000 systems.
Market Overview
The success of large organizations in today's competitive markets is
largely dependent on the ability of these organizations to identify and respond
to changing business conditions. Such organizations need to rapidly collect,
organize, analyze, process and store data throughout the enterprise to make
effective business decisions. An organization's strategic use of IT is often
critical to creating and maintaining large data centers of corporate data and
effectively manipulating it to gain competitive advantage. However, deploying
enterprise-wide data-center systems solutions is complex and often presents a
major challenge to corporate IT organizations, especially because of several
overlapping industry trends that have continually defined the market for such
systems. Following is a discussion of some of these trends:
RDBMS and OLTP. In traditional mainframes, data entered into the system was
typically stored in highly structured flat files called hierarchical databases.
During the 1980s, use of these rigid database structures gave way
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<PAGE>
to RDBMS software whose flexible structure enabled the rapid deployment of large
database applications for OLTP. In contrast to the batch data entry and
processing characteristic of early mainframe computing, OLTP captures data from
transactions as they are executed and adds or updates records in the database in
real time. The market demand for OLTP computing systems, particularly those
using RDBMS technology, spans a wide variety of industries and applications and
has increased dramatically as more businesses require instantaneous processing
of information.
DSS/Data Warehousing. The wealth of historical data that has been amassed
by large organizations over the past several decades has given rise to
widespread demand for technology to access that data and convert it into useful
information. More recently, the growth of the Internet-based technologies and
the proliferation of multimedia databases are creating new demand for ways to
cull information from multiple types of data. In response to these demands,
decision support systems have become one of the fastest growing segments of the
high-end, open systems computing market. These systems combine relational
database software and large, scalable servers with powerful front-end software
tools that enable individual users to comb through very large volumes of data
and extract specific information such as market trends and customer buying
patterns. Today's data warehouses are large databases constructed specifically
to optimize the accessibility of the data for decision support applications.
Recently, RDBMS vendors such as Oracle and Informix Corporation ("Informix")
have added parallel query capabilities to their software, dramatically enhancing
their performance on systems with parallel architectures such as SMP and
CC-NUMA.
The Internet and Electronic Commerce. Today, virtually every large
organization has a corporate intranet of some sort and an emerging presence on
the World Wide Web. Over the next several years, the projected growth of
web-based infrastructures is expected to be driven by the expansion of messaging
and electronic commerce, requiring larger and more scalable servers. Connected
to millions of PCs and network computers by one vast network, these servers will
manage very large volumes of on-line transactions involving tens of thousands of
concurrent users and millions of multi-megabyte-sized chunks of text, voice,
video and other complex data types. In an effort to better understand the
complexities of their markets, the dynamics of their business and the needs of
their customers, Sequent believes that organizations will depend on
massively-scalable servers to search through large databases for information and
insights that can provide a competitive advantage.
Client/Server and Network Computing. The simplest form of client/server
architecture is a two-tier configuration consisting of a server that manages
data connected to desktop clients (PCs or workstations) that can access the data
to run various applications that reside on the desktop. Typically, these servers
are inexpensive, low-end (one- to four-processor) systems manufactured in volume
by makers of desktop systems. Three-tier client/server architectures typically
employ a large, back-end database server connected to one or more application
servers connected to multiple desktops. In this arrangement, desktop users have
access to both applications and data which do not reside on their system. During
the first half of this decade, both configurations were used in the widespread
development of distributed client/server architectures where data and
applications were distributed across multiple servers connected to desktop users
by a single network. Recently, however, the difficulties in implementing and
managing distributed client/server environments have slowed this trend and
resulted in a renewed emphasis on the development of centralized client/server
environments where data resides on a single larger server. Complementing this
shift toward centralization is the recent emergence of the "network computer,"
an inexpensive ("thin") desktop client with no permanent storage capacity that
is designed to run applications and access data stored on very large ("fat")
servers. The use of such network computing devices is expected to increase
demand for larger back-end servers.
UNIX and Windows NT. Beginning in the early 1980s, the UNIX operating
system, originally developed by AT&T in the 1960s, was adopted by a growing
number of computer manufacturers and gradually won recognition as an emerging
standard for open systems computing. However, efforts by various vendor
consortiums failed to achieve the development of a single standard UNIX to
replace the multiple versions of UNIX being developed and marketed by individual
companies. In 1993, Microsoft introduced Windows NT as an alternative to UNIX.
During the past four years, Windows NT has won widespread acceptance as the
preferred operating system for network and applications servers, while UNIX
remains the operating system of choice for large data- center applications.
Despite its current limitations, many industry experts believe that over time
Windows NT will acquire the scalability, robustness and functionality necessary
to replace UNIX and become the de facto standard for enterprise-wide computing.
As IT directors plan long-term IT strategies for their organizations, they are
21
<PAGE>
confronted with the dilemma of which operating systems to employ and how to
migrate to those operating systems and interrelate the various operating systems
throughout the enterprise.
Scalable System Architectures. A scalable computer architecture is one that
allows a user to increase the power and performance of a single system by adding
more processors, memory and storage. Massively parallel processor systems
("MPP") can scale up to hundreds of processors in a loosely coupled
architecture, where each processor has its own memory and I/O. The fact that
each processor node has its own copy of the operating system software makes MPP
systems difficult to program and limits their use in large commercial
applications. In contrast, SMP systems employ a tightly-coupled architecture in
which two or more processors are connected by a system "bus" that enables them
to share memory and I/O. A single copy of the operating system software assigns
the workload across all the processors so that to a user the system appears to
contain only one very powerful processor. As a result, SMP systems are much
easier to program than MPP systems and have become widely used for large-scale
commercial applications. Today, the size and complexity of applications of large
organizations have begun to require greater performance than can be achieved by
scaling traditional SMP architectures.
Existing technologies limit the amount of data that can travel across the
system bus in an SMP system. As processors have become more powerful, this
physical constraint limits the number of processors the bus can accommodate. The
CC-NUMA architecture overcomes this limitation by linking multiple SMP boards
together with intelligent, high-speed interconnects that allow processors on one
board to access data on other boards. Because each board has its own memory and
I/O, CC-NUMA systems share many of the scalability benefits of MPP systems. In
CC-NUMA systems, however, the interconnects between the boards are designed to
create a single coherent view of one large contiguous memory out of the
distributed pieces of physical memory on each board so that to a user the system
appears to contain only one very powerful processor. As a result, CC-NUMA
systems deliver all the benefits associated with shared memory in traditional
SMP systems and represent a powerful extension of SMP architecture.
Open Systems. Historically, large organizations relied exclusively on
computing equipment based on a single vendor's proprietary technology that was
generally incompatible with that of other vendors. In recent years, proprietary
systems have become increasingly unacceptable to companies that want the
flexibility to purchase computing equipment and software best suited for a
specific need without being limited to the choices offered by a specific vendor.
"Open systems," by contrast, refers to hardware and software that adheres to
industry standard specifications, allowing users to select and integrate the
best products from different vendors to create large networks and client/server
computing environments, facilitating the flow of information within and between
organizations. Many companies are replacing some or all of their proprietary
central computing systems, moving to a more open, distributed system when they
upgrade or expand their systems.
Sequent's Business Strategy
Sequent's business strategy is to provide enterprise-wide systems that
enable large organizations to manage and use complex information. Sequent
leverages the research and development efforts of industry-standard component
suppliers by using their products and applying Sequent's expertise to design and
build large, scalable data-center-ready open systems. Through technology and
marketing partnerships with industry-leading hardware and software vendors, the
Company develops and sells a broad range of offerings that address the needs of
large organizations for OLTP and DSS. Sequent sells its products and services
worldwide through its direct sales force, through distributors and,
increasingly, through arrangements with systems integrators. The Company's
consulting and professional services organization helps customers diagnose their
information technology problems and develop appropriate solutions based on the
Company's offerings. Sequent consultants and professional services personnel
provide value-added services both directly to customers and in partnership with
systems integrators. The key elements of Sequent's strategy are the following:
Solving Complex IT Problems. Sequent concentrates on understanding the
business objectives and information technology needs of its customers at all
organizational levels. The Company's consultants and professional services
personnel work closely with the customer's in-house IT organization, or its
designated systems integrator, to diagnose complex IT problems, then design and
implement open solutions that support the customer's business objectives and are
aligned with the customer's strategic goals. Specific areas of focus include IT
strategy
22
<PAGE>
and planning, enterprise infrastructure, core business applications, decision
support, migration from proprietary to open systems and project management.
Providing Scalable Systems Architecture. Sequent invests significant
resources in developing scalable systems architecture. Sequent believes its
NUMA-Q 2000 systems provide exceptional price/performance and scalability for
data-center applications. Designed to run the same operating system and
applications as the Company's Symmetry products, NUMA-Q 2000 extends the
benefits of traditional SMP technology within an architecture that is designed
to scale up to 252 microprocessors. Using an SMP "quad" with four Intel Pentium
Pro processors as the basic building block, NUMA-Q 2000 uses a proprietary
intelligent high-speed switch called IQ-Link that is designed to combine up to
63 quads in a system that, from a user's perspective, looks and behaves like a
single SMP system.
Compared to standard SMP and mainframe systems, the performance and
scalability benefits of the NUMA-Q architecture enhance performance and
flexibility of transaction-intensive and decision support applications. Sequent
believes that its NUMA-Q architecture has the capability to outperform
traditional mainframes. In addition, global shared memory and other SMP-like
characteristics of the NUMA-Q architecture enable customers to develop and
deploy large, centralized client/server applications that are difficult and
costly to implement in a mainframe environment.
Sequent was the first to bring Intel-based CC-NUMA systems to market,
shipping the first NUMA-Q 2000 systems to customers in late 1996. During
Sequent's second quarter of fiscal 1997, ended on June 28, 1997, revenue from
NUMA-Q 2000 sales surpassed revenue from Symmetry sales and accounted for a
majority of the Company's total product revenue.
Sequent is committed to maintaining its leadership position in CC-NUMA
systems, including upgrading to new Intel processor generations as they become
available.
Leveraging Strategic Relationships. Sequent devotes substantial resources
to strategic marketing and product development relationships with those
companies it believes offer the best open systems technologies. These
relationships, combined with the open systems knowledge and expertise of the
Company's consulting and professional services organization, allow Sequent to
deliver complete solutions that combine the best available products and
services. Sequent has strategic relationships with Intel for joint research and
development of future computer systems building blocks; with major providers of
RDBMS software, including Oracle, Informix and Computer Associates
International, Inc.; with leading suppliers of third-party applications software
such as Oracle, PeopleSoft, Inc. ("PeopleSoft") and Baan Company N.V. ("Baan");
with Microsoft for the development of future platforms running the Windows NT
operating system; with suppliers of communications and network software; with
emerging suppliers of client/server application development products; and with
industry-leading systems management and tools vendors.
Maintaining Commitment to Open Systems. Sequent's open system architecture
leverages industry standards whenever possible, including the use of Intel
processors, the UNIX and Windows NT operating systems, and standard network and
communications interfaces. Sequent systems are designed to operate in a
multi-vendor environment and support a wide variety of third-party software,
including open RDBMSs, packaged applications and decision support tools and
applications.
Supporting Advancement of UNIX and Windows NT. Sequent is committed to the
advancement of both UNIX and Windows NT in the data center. As a leading
supplier of large UNIX systems for data-center applications, Sequent continues
to invest in the development of its DYNIX/ptx operating system, which the
Company believes is superior in many respects--including scalability and
availability--to other competing versions of UNIX. In addition, the Company is
making substantial investments to assure the scalability, availability and
functionality of Windows NT on NUMA-Q systems. The Company is also working on
future data-center products with dynamic partitioning that will enable customers
to deploy UNIX and Windows NT applications on the same system. Sequent believes
that the ability to provide customers with a clear interoperability plan or a
credible migration path from UNIX to Windows NT in the data center will be an
important differentiator for the Company.
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Protecting Customers' Investments. Sequent strives to help its customers
protect and leverage their investments in open systems technology. The Company's
products are designed for interoperability with other vendors' products. Through
successive generations of Intel microprocessors, Sequent has maintained backward
compatibility of its newest Symmetry products with earlier models incorporating
older processors. There are Symmetry systems installed at customer sites that
incorporate Intel 386, 486 and Pentium processors in the same system. Although
the CC-NUMA architecture is different from the SMP architecture, Sequent
designed its NUMA-Q 2000 product to run the same operating system and
applications as its Symmetry products, allowing customers to move applications
from Symmetry to NUMA-Q 2000. During the second quarter of 1997, the Company
introduced technology that enables customers to cluster NUMA-Q 2000 systems with
their existing Symmetry systems.
Platform Overview
Commercial computing applications in large organizations require massive
processing power, memory and disk storage capacity. These requirements often
increase exponentially with the number of users and the volume of data
associated with the application. In addition, many applications are so critical
to an organization's business that any unplanned downtime resulting from
hardware or software failures can be extremely costly.
Built for customers with large-scale, mission-critical computing
requirements, Sequent's Symmetry and NUMA-Q 2000 products provide high
performance and functionality that are designed to scale up as the customer's
needs grow. Both Symmetry and NUMA-Q 2000 are based on industry standards and
are designed for easy interoperability with other computing hardware in an open
systems environment. Both systems can also be clustered to provide high
availability for mission-critical applications. Sequent's clustering technology
also allows customers to combine Symmetry and NUMA-Q 2000 systems in a
high-availability cluster.
In Company comparisons, NUMA-Q 2000 systems have demonstrated performance
up to ten times as fast as Symmetry systems with the same number of processors.
Based on recent customer and partner benchmarks in which NUMA-Q 2000 systems
have been compared to SMP and MPP systems manufactured by the Company's
competitors, the Company believes that NUMA-Q 2000 delivers the best performance
and scalability for large-scale RDBMS-based applications on open systems
available today.
Hardware Architecture. The Company's Symmetry line of Intel-based SMP
systems, introduced in 1987 and currently based on Intel's Pentium architecture,
scales from two to 30 processors, with up to 3.5 gigabytes of shared memory and
up to 1.7 terabytes of disk storage. The Company's NUMA-Q 2000 systems are
designed to scale up to 63 quads (252 Pentium Pro processors) and currently ship
in configurations ranging from one to eight quads, with up to four gigabytes of
memory and one terabyte of disk storage per quad. The NUMA-Q architecture
overcomes the scalability limitations of Symmetry's single-bus SMP architecture
by joining together multiple SMP boards with an intelligent, high-speed
interconnect called IQ-Link to create systems with a single, coherent view of
memory and a single instance of the operating system running across all the
quads in the system.
In Sequent's NUMA-Q architecture, a quad is a four-way Pentium Pro
processor SMP baseboard with features and enhancements added by Sequent to
improve its performance and reliability as a component in large data-center
systems. IQ-Link, developed by Sequent in cooperation with Vitesse Semiconductor
Corporation ("Vitesse Semiconductor"), uses a gallium arsenide data pump to
transfer data between quads at the rate of one gigabyte per second. IQ-Link has
the ability to monitor the Pentium Pro processor bus on a specific quad and
respond to requests for data contained in memory on a different quad. IQ-Link
first examines its own large cache to see if the requested data has been
temporarily stored there. If it does not find the data in its own cache, it puts
a request out to the memory on other quads. All of this activity happens
transparently to the database and application software. To an end user, the
system looks and behaves like a large SMP system.
Over the years, Sequent's scalable architectures have enabled the Company
to incorporate technological advances in its product offerings more quickly and
inexpensively than manufacturers of computer systems with proprietary central
processing units. The Company's ongoing product development efforts leverage
advances in open systems technology, including processor enhancements, storage
technology, communications and user-interface enhancements. These enhancements
directly benefit customers by enabling them to upgrade their installed Sequent
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<PAGE>
systems without altering source programs, retraining users or replacing hardware
and software not directly affected by the upgrade.
Operating System Software. Both Symmetry and NUMA-Q 2000 systems are
designed to run DYNIX/ptx, Sequent's highly scalable version of the UNIX
operating system. Core technology in the kernel of DYNIX/ptx enables Sequent
systems to provide highly scalable performance as processors are added.
Sequent has also made a significant commitment to support Microsoft's
Windows NT operating system. Sequent currently sells low-end and mid-range
Windows NT systems (NTX 2000) manufactured by NCR Corporation, typically as
application servers in large applications where Symmetry or NUMA-Q 2000 systems
are installed as database servers running DYNIX/ptx. Sequent is currently
working closely with Microsoft to develop Windows NT-based NUMA-Q 2000 servers
designed to optimize the capabilities of Windows NT for scalable applications
that use either shared memory or distributed memory. The Company plans to
introduce its first Windows NT-based NUMA-Q 2000 systems in 1998.
Sequent believes that Windows NT will eventually rival UNIX operating
systems and may even replace UNIX as the preferred open systems operating
environment in large corporate data centers. Accordingly, the Company is working
with Microsoft on the development of NUMA-Q products that will enable customers
to deploy DYNIX/ptx and Windows NT on the same system and dynamically partition
the number of quads allocated to each operating system.
Communications Products. The Company's systems support communications
products that allow Symmetry and NUMA-Q 2000 systems to interconnect with other
systems in multi-vendor system environments. These products include hardware
that connects to wide and local area networks (WANs and LANs) and software that
supports industry standard protocols.
Sequent's communications products are differentiated by Parallel STREAMS, a
feature of the Company's DYNIX/ptx operating system which significantly enhances
their performance and scalability for standard high-level protocols and
low-level communications media, including Ethernet, Token Ring, fiber
distributed data interface (FDDI) and synchronous lines.
In addition to supporting open systems protocols such as TCP/IP, Open
Systems Interconnections (OSI) and X.25, Sequent products can communicate
directly with IBM and DEC systems via Systems Network Architecture (SNA) or
DECnet/LAT protocols, respectively.
Sequent's NUMA-Q 2000 systems employ several high speed communications
connections, including 100 Megabit-per-second Ethernet, CDDI (a copper wire
version of FDDI), ATM, and high speed Synchronous E1/T1, which offer an order of
magnitude increase to the bandwidth of previous offerings.
Strategic Relationships with Leading Vendors
Since Sequent was formed in 1983, the Company has built its business around
open systems. Consequently, Sequent maintains strategic relationships with
industry-leading manufacturers of components, systems and software.
Increasingly, the Company also resells its partners' products in connection with
the sale of the Company's products.
Components. Since Sequent began building products based on Intel's
microprocessor architecture in 1987, the Company has maintained a close working
relationship with Intel. This relationship has enabled the Company to leverage
Intel's research and development investment by aligning its technology roadmap
with Intel's. It has also enabled Sequent engineers to influence certain design
features in successive generations of Intel microprocessors to optimize the
performance of those components in the Company's systems. Sequent is currently
working closely with Intel on the upgrades to the Pentium Pro processor and on
Intel's next-generation microprocessor technology. During the development of its
NUMA-Q technology, Sequent also established a close working relationship with
Vitesse Semiconductor, a manufacturer of the intelligent high speed data
switches used to connect NUMA-Q quads.
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Storage Subsystems. Sequent systems include storage subsystems supplied by
leading storage vendors including EMC Corporation, Data General's Clarion
division and Storage Technology Corporation. Sequent works closely with these
vendors to deliver optimal performance of the combined products to customers.
Relational Database Management Software. Sequent has strategic development
and marketing relationships with major providers of RDBMS software, including
Oracle and Informix. The Company works closely with these partners to optimize
the performance and scalability of their products for large OLTP and DSS/data
warehousing applications. Sequent cooperates with these partners in development
programs, joint marketing programs and team sales efforts. The Company has from
time to time entered into agreements with various vendors that provide for
prepayment of future licenses and royalties based on sales of software. See Note
1 of "Notes to Consolidated Financial Statements."
Client/Server Applications Software. Sequent maintains strategic
relationships with key providers of packaged client/server applications and
development tools for custom client/server applications.
Packaged client/server applications provide a standard pre-engineered
solution for a common set of functional business problems. Packaged applications
offer the potential to trim the total cost of a solution, reduce the time
required for implementation, and lower overall project risk. Sequent maintains a
number of strategic relationships with software partners who provide products in
this area including Oracle, PeopleSoft and Baan.
Nearly half of Sequent's large projects involve the development of custom
client/server solutions in situations where packaged applications do not meet
business requirements or where customers want a solution that will give them a
competitive edge. Sequent maintains strategic relationships with software
partners such as Oracle, Informix and Forte Computer Easy, Inc., which provide
software tools that enable the development of large custom applications.
Third-Party Applications Programs. Over 650 UNIX software applications from
approximately 300 vendors are available to Sequent customers. These software
products include a broad array of core business applications and address the
needs of many different vertical markets, including manufacturing,
telecommunications, health care, financial services and state and local
governments. To supplement the marketing efforts of third-party suppliers, the
Company actively promotes its software partners and their products to end users
through joint sales campaigns, demonstrations at its sales offices and trade
shows, marketing collateral and joint marketing programs. In addition, Sequent's
NTX 2000 systems support the thousands of software applications developed by
third-party companies for the Microsoft Windows NT operating system.
Product Development
Sequent's research and development programs are focused on advancing
hardware and software technologies that strengthen the Company's core product
and service offerings. Sequent devotes substantial resources to ensure that its
evolving technology roadmap is aligned with the technology direction of industry
leading vendors, such as Intel, Microsoft and Oracle. Sequent engages in
cooperative technology programs with these and other industry leaders,
contributing its knowledge and expertise to the development of their products to
optimize their performance with its own products.
Sequent's hardware development is focused on using industry-standard
components to build the industry's fastest, most reliable and most scalable
computer systems designed to run both UNIX and Windows NT software. The
Company's software development program is focused on continually improving the
performance, reliability and scalability of DYNIX/ptx; providing clustering
software that enables high availability; and enhancing its suite of
communications and networking software, client/server tools and third-party
applications software.
Sequent is committed to continuing to make substantial investments in
research and development activities to maintain and enhance its competitive
position in a market characterized by rapid technological advances.
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Consulting and Professional Services
During the past five years, Sequent has strengthened its ability to compete
at the high end of the open systems market by building a consulting and
professional services organization with broad-based knowledge of open systems
and specific knowledge and expertise in the design, development and
implementation of large-scale database applications. Working directly with
customers or in partnership with systems integrators, the Company's professional
services consultants help organizations diagnose their information technology
problems and design solutions that leverage the best open systems technology and
are aligned with the customer's business strategy. The sale of IT architectural
consulting and professional services frequently results in the sale of systems
in large projects.
Sequent offers a wide range of professional services designed to assure the
success of every phase of a customer's project, from advance planning and
architecture to technology deployment and ongoing systems support. Professional
services include: IT architecture and transition planning; DSS design and
implementation; implementation of packaged OLTP applications (such as Oracle
Financials & Manufacturing, Baan, and PeopleSoft applications); and enterprise
management design and systems administration. In addition, Sequent offers
customers a broad array of education and training programs.
Sequent's consulting and professional services capability has enabled
Sequent to transform itself from a systems vendor into a provider of
solution-oriented offerings. Professional services add significant value to the
Company's partnerships with systems integrators and are a key factor in
Sequent's ability to win new major accounts. The scope of the Company's
professional services expertise enables it to compete successfully for large
projects, where the size of the average system sale is significantly greater
than the average size of systems sold without professional services. Having
professional services personnel on site in customer accounts also enables the
Company to build customer relationships that result in a better understanding of
the organization's IT needs and frequently lead to follow-on projects.
Sequent's professional services represent one of the fastest growing
segments of its business and accounted for just under 10% of revenue during
1996. Professional services revenue from large projects is typically booked over
several quarters, resulting in a revenue stream that is more predictable than
revenue from systems sales.
Because of the strategic importance of professional services, Sequent
increased the number of professional services consultants by 38% in 1996 and is
continuing to expand the organization during 1997.
Sales and Distribution
Sequent sells its products and services worldwide through its own direct
sales force. In addition, the Company partners with major systems integrators,
such as EDS, and with integrators such as Persetel in South Africa, Ssangyong in
Korea, and Unisys in Latin America, who have established a strong presence in
specific geographic regions. In several countries in Asia-Pacific and elsewhere,
the Company also relies on distributors with open systems expertise and a strong
market presence. Sequent's direct sales efforts are focused on large
organizations with the goal of establishing and maintaining long-term "major
account" relationships.
The Company's direct sales force is made up of sales teams, generally
consisting of a major account executive ("MAE") and a systems analyst ("SA").
MAEs have primary responsibility for managing the team's accounts; SAs provide
technical support during the sales cycle. The sales teams work closely with the
Company's professional services organization to identify opportunities to
leverage the Company's consulting and professional services capability in their
accounts. In 1996, the Company invested heavily in the expansion of its direct
sales force, increasing the number of major account executives by 54%. During
1997, the Company is investing in the continued growth of its direct sales force
and the expansion of its partnerships with systems integrators.
Sequent currently has 62 sales offices worldwide, including 31 in North
America, 15 in Europe, and 16 in Asia-Pacific.
Like many other companies in the computer industry, Sequent receives and
ships a significant portion of orders in the last month of each fiscal quarter.
As a result, the Company's product backlog is generally relatively
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small, is not necessarily indicative of sales levels for future periods and is
not material to understanding the Company's business.
The Company had no single customer that represented greater than 10% of
total revenues in 1994, 1995 or 1996. International sales were approximately 48%
of the Company's total revenues in 1994 and approximately 55% in 1995 and 1996.
Customer Services
Sequent offers a growing array of customer service and support programs,
including hardware maintenance and service, software service and upgrades and
documentation support. In addition, hardware maintenance is offered for many
third-party peripheral products connected to Sequent systems. The Company
maintains round-the- clock technical consultation as well as remote log-in
capability for diagnosing customer hardware and software problems. In some
cases, in-field hardware service is contracted to third-party suppliers, who
rely on Sequent for customer interface and diagnostic support. The Company's
standard warranty on its products generally extends 90 days from the date of
customer installation.
Because Sequent believes that the quality and reliability of its computer
systems are essential to customer satisfaction, high system uptime is a built-in
advantage of Sequent's architecture. The Company's commitment to quality and
reliability is emphasized in its service programs. Sequent personnel perform all
installations and hardware fault isolation and provide complete software support
for direct customers. In the event a hardware malfunction occurs, systems are
equipped with diagnostic tools that allow the Company's service engineers to
identify, diagnose and repair a failed component from remote locations. The
Company also offers service and support programs in system performance
evaluation and disaster protection.
Sequent has consistently been rated among the best providers of customer
service in independent customer surveys. Revenue generated from services and
support, including professional services, was 24%, 27% and 30% of total revenue
during 1994, 1995 and 1996 respectively.
Manufacturing
The Company's manufacturing operations consist of procurement, assembly,
test and quality control. Subcontractors are often used to assemble and test
subassemblies, such as printed circuit boards. The modular nature of the
Company's products, together with the standards-based open architecture, permit
ease of manufacture and system configuration. Once integrated, all systems go
through a fully operational, continuous burn-in cycle while executing rigorous
system stress and diagnostic tests. Final assembly and testing occur only when a
specific customer order is due for shipment (because of the broad range of
system configurations possible from a relatively few basic modules and the many
choices of peripherals). If a failure occurs or a problem of unknown origin
arises during work-in-progress testing, it is the policy of the Company to halt
shipment of products that may be affected while the Company isolates and
corrects the problem and determines whether the problem may extend to other
systems in manufacturing or at customer sites.
The Company generally obtains most parts and components from single
sources, even where multiple sources are available, to maintain quality control
and enhance its working relationship with suppliers. These relationships include
joint engineering programs for new product development. Certain components used
by the Company, including Intel microprocessors, custom VLSI gate arrays and
intelligent high speed data switches, are only available from a single source.
The Company attempts to reduce the risk of supply interruption through close
supplier relationships and greater inventory positions in certain sole-sourced
components. The failure of a supplier to deliver on schedule could delay or
interrupt the Company's delivery of products and thereby adversely affect the
Company's revenue and profits.
Competition
The computer industry is intensely competitive and characterized by rapid
technological advances resulting in frequent new product introductions and
correspondingly frequent improvements in performance and functionality.
Competitive factors related specifically to Sequent's business include product
quality and reliability, professional
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services and customer support capability, price/performance and scalability,
compatibility with a customer's existing IT infrastructure, availability of
applications software and company size and reputation.
Within the commercial segment of the computing market, Sequent competes
against IBM, Hewlett-Packard, Sun, DEC and others whose size, reputation,
installed base, technical expertise, marketing strength, distribution channels
and financial resources make them formidable competitors. Most of these
companies also have large professional services organizations and alliances with
many hardware and software vendors with whom Sequent has strategic
relationships. Although SGI and Data General have already introduced products
based on CC-NUMA technology, Sequent has not experienced significant competitive
pressure from these companies. Sequent believes that the performance and
scalability of its current products, the strength of its partnerships and the
caliber and scope of its consulting and professional services represent key
differentiators that have enabled the Company to compete successfully against
these companies in the past and will enable it to compete successfully against
them and others in the future.
Patents and Licenses
Six U.S. and three United Kingdom patents have been issued to the Company.
The Company has pending 10 additional U.S. patent applications and two foreign
applications covering technology incorporated into its products. The Company
believes that the rapid pace of technological change in the computer industry
makes patent protection less significant than factors such as its continued
focus and efforts in research and product development, its technical expertise
and the management ability of its personnel. The Company has from time to time
been made aware of others in the industry who assert exclusive rights to certain
technologies, copyrights or trademarks, usually in the form of an offer to
license certain rights for a fee or royalties. The Company's policy is to
evaluate such claims on a case-by-case basis. The Company may seek to enter into
licensing agreements with companies having or asserting rights to technologies
if the Company concludes that such licensing arrangements are necessary or
desirable. There can be no assurance that the Company will be able to obtain
such licenses or, if obtained, that such licenses will be on favorable terms.
Employees
At June 28, 1997 the Company employed 2,643 employees of whom 247 were
employed as major account executives, 1,504 in sales support, marketing and
service, 398 in product development, 202 in manufacturing and 292 in
administrative and support services. The Company's continued success will depend
in part on its ability to attract and retain highly skilled and motivated
personnel who are in great demand throughout the industry. None of the Company's
employees are represented by a labor union. All full-time Sequent employees are
granted options to acquire Common Stock of the Company. Sequent believes that
its employee relations are excellent and believes that its stock incentive
plans, its challenging work environment and the opportunities for advancement
within the Company are key factors to its ability to attract and retain
qualified personnel.
Facilities
The Company's headquarters and its product development and manufacturing
operations are located in facilities totaling approximately 560,000 square feet
in Beaverton, Oregon, 10 miles west of Portland. The Company occupies these
facilities under leases that expire between 1999 and 2006. On the expiration
dates of these leases, the Company generally has the option to purchase the
leased facilities or to renew the leases for an additional five years. In
addition, the Company owns 38 acres of undeveloped land in Beaverton held in
anticipation of future facility growth requirements. The Company also has leases
for sales, marketing and customer support offices in locations throughout the
world. The Company anticipates that it will continue to expand its corporate and
field facilities as business growth warrants.
The Company intends to expand its headquarters facilities with the
construction of a new building commencing in the fall of 1997. The Company plans
to finance the approximately $17.5 million of construction costs through a
synthetic lease transaction. The Company also plans to exercise, in the spring
of 1998, its existing options to acquire two buildings on its headquarters site
at an aggregate cost of approximately $23.0 million. The Company intends to
finance this purchase through a synthetic lease transaction. See "Use of
Proceeds."
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SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 11, 1997 by each Selling
Shareholder and as adjusted to reflect the sale of shares of Common Stock
offered hereby.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Prior to Shares Beneficially
Offering (1) Number of Owned After Offering
------------------- Shares Being --------------------
Name Number Percent Offered Number Percent
---- ----- ------- ------------ ------ -------
<S> <C> <C> <C> <C>
State Farm Mutual Automobile
Insurance Company......................... 1,230,950 3.5% 981,700 249,250 *
Froley, Revy Investment Co., Inc. Account:
State of Oregon Equity Fund (2) .......... 189,733 * 63,241 126,493 *
Robert C. Mathis (3) ....................... 30,020 * 5,620 24,400 *
- ---------------
<FN>
* less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares issuable upon
conversion of Convertible Debentures are considered outstanding for the
purpose of calculating the percentage of Common Stock owned by the holder
of such Convertible Debentures but not for the purpose of calculating the
percentage of Common Stock owned by any other person. Each Selling
Shareholder has sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by him or it, unless otherwise
indicated.
(2) Represents shares of Common Stock issuable on conversion of Convertible
Debentures. Convertible Debentures in the principal amount of $1 million
will be converted into 63,241 shares of Common Stock by this Selling
Shareholder and sold in the offering.
(3) Represents shares subject to options that are currently exercisable or
become exercisable within 60 days of the date of this table. Options to
purchase 5,620 shares of Common Stock will be exercised and the shares sold
in the offering. Mr. Mathis, a director of the Company, holds options to
purchase an additional 26,180 shares under the Company's stock incentive
plans.
</FN>
</TABLE>
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MANAGEMENT
The executive officers and directors of the Company, and their ages and
positions as of June 28, 1997, are as follows:
Name Age Position
Karl C. Powell, Jr............54 Chairman, Chief Executive Officer and
Director
John McAdam...................46 President, Chief Operating Officer and
Director
Robert S. Gregg...............44 Sr. Vice President-Finance and Legal and
Chief Financial Officer
Steve Chen....................53 Executive Vice President of Product Group,
Chief Technology Officer and Director
Robert C. Mathis..............69 Director
Richard C. Palermo............59 Director
Michael S. Scott Morton.......59 Director
Robert W. Wilmot..............52 Director
Mr. Powell, a co-founder of the Company, is Chairman and Chief Executive
Officer and has been a director since 1983. Mr. Powell has served as the
Company's sole Chief Executive Officer or shared the office of the Chief
Executive with the co-founder of the Company since the Company's inception. From
1974 to 1983, Mr. Powell was employed by Intel Corporation, where his most
recent position was General Manager for Microprocessor Operations. Mr. Powell
served on the National Board of Directors of the American Electronics
Association from 1985 to 1986. He holds a B.S. degree in Mechanical Engineering
from the U.S. Merchant Marine Academy.
Mr. McAdam joined the Company in August 1989 as U.K. Sales Director. He
became U.K. General Manager in January 1991, Vice President and General Manager
of European Operations in October 1992 and Senior Vice President of European and
Asian Operations in January 1994. He was promoted to President and Chief
Operating Officer in February 1995 and was elected to the Board of Directors in
November 1995. Prior to joining the Company, Mr. McAdam was employed for 10
years by Data General U.K. Ltd., serving most recently as Regional Manager,
Public Sector, Finance and Government Market. Mr. McAdam holds a B.Sc.
first-class honors degree in Computer Sciences from Glasgow University.
Mr. Gregg joined the Company in 1983 as its Controller. He became Director
of Finance in 1984 and Vice President-Finance and Chief Financial Officer in
March 1986. He was promoted to Senior Vice President-Finance and Legal and Chief
Financial Officer in February 1995. Prior to joining the Company, Mr. Gregg
spent eight years at the public accounting firm of Price Waterhouse LLP. Mr.
Gregg holds a B.S. degree in Business and Accounting from the University of
Oregon.
Dr. Chen joined the Company in 1996 as its Executive Vice President of
Product Group and Chief Technology Officer and as a member of the Board of
Directors. Prior to joining the Company, Dr. Chen was a co-founder of
SuperComputer International (SCI), later renamed Chen Systems, which was
recently acquired by Sequent. Prior to founding SCI, Dr. Chen was President and
CEO of SuperComputer Systems, Inc. Before that, Dr. Chen was employed for eight
years at Cray Research, Inc., serving most recently as Senior Vice President.
Dr. Chen holds a Ph.D. in Computing Science from the University of Illinois, a
M.S. degree in Electrical Engineering from Villanova University and a B.S.
degree in Electrical Engineering from the National Taiwan University.
Dr. Mathis has been a director of the Company since 1985. Dr. Mathis was a
General in the U.S. Air Force and served as Vice Chief of Staff from 1980 to
1982. He retired from the Air Force in 1982. Dr. Mathis is Chairman of the I Am
Third Foundation, a non-profit organization serving the disabled, which he and
his wife founded in 1982. He has also served on a number of boards and is
currently Chairman of Eagle Pass Engineering, a consulting firm, and Chairman of
the Eagle Mountain Group, an international business brokering firm.
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<PAGE>
Mr. Palermo has been a director of the Company since March 1993. Mr.
Palermo was employed by Xerox Corporation from 1965 until his retirement in
March 1993, serving most recently as Senior Vice President, U.S. Quality and
Customer Satisfaction and Vice President of Marketing. He currently serves as a
quality consultant to Xerox Corporation and other companies.
Dr. Scott Morton has been a director of the Company since 1991. Dr. Scott
Morton is the Jay W. Forrester Professor of Management at the Sloan School of
Management and was Chairman of the Faculty for the Senior Executive Program at
M.I.T. He has also served as Program Director of the Management in the 1990s
Research Program and as Associate Dean of the Sloan School of Management at
M.I.T. Dr. Scott Morton is a Trustee of the State Street Research Funds and the
Metropolitan Life Series Funds.
Dr. Wilmot has been a director of the Company since 1992. Dr. Wilmot is
Chairman of Wilmot Consulting Inc., a consulting firm, and has been a consultant
to the Company since January 1987. He has also been an advisor to the Board of
Directors since November 1988. Dr. Wilmot was a managing director of Texas
Instruments, Ltd. from 1978 to 1981. From 1981 to 1985 he was Chief Executive
and then Chairman of I.C.L., Britain's major computer company. He has founded
several companies in Europe and the United States, including Organization and
System Innovations, The OASIS Group (a leading European company engaged in
reengineering management consultancy, now a wholly owned subsidiary of Sybase
Inc.) and Poqet Computers Corporation (a palm top computer manufacturer in
California, now a wholly owned subsidiary of Fujitsu Ltd.). He is a director of
several privately-held, high-technology companies in Europe and the United
States.
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
General
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person or entity (a "Non- U.S.
Holder"). For purposes of this discussion, a "Non-U.S. Holder" is any person or
entity that is, as to the United States, a foreign corporation, a non-resident
alien individual, a foreign estate or trust, or a foreign partnership. An alien
individual is treated as a resident of the United States during a calendar year
if the individual (i) is a lawful permanent resident of the United States at any
time during the calendar year, (ii) meets the substantial presence test, or
(iii), if certain conditions are satisfied, elects to be treated as a resident.
The substantial presence test is met if an individual is present in the United
States on at least 31 days in the calendar year and for an aggregate of at least
183 days during the current calendar year and the two preceding calendar years
(counting for such purposes all of the days present in the United States during
the current year, one-third of the days present in the United States during the
immediately preceding year, and one-sixth of the days present in the United
States during the second preceding year). Resident aliens are subject to United
States federal tax as if they were United States citizens.
This discussion does not address all aspects of United States federal
income and estate taxes or consider any specific facts or circumstances that may
apply to a particular Non-U.S. Holder. This discussion does not take into
account provisions of income tax treaties that may be applicable in certain
circumstances, nor does it deal with foreign, state and local consequences that
may be relevant to Non-U.S. Holders. Furthermore, this discussion is based on
current provision of the Internal Revenue Code of 1986, as amended ("IRC"),
existing and proposed regulations promulgated thereunder, and public
administrative and judicial interpretations thereof, all of which are subject to
changes, which could be applied retroactively. Each prospective purchaser of
Common Stock is advised to consult a tax advisor with respect to current and
possible future tax consequences of acquiring, holding and disposing of Common
Stock.
Dividends
Except as described below, dividends paid to a Non-U.S. Holder of Common
Stock will be subject to withholding of United States federal income tax at a
30% rate or such lower rate as may be specified by an
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<PAGE>
applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the United
States. If the dividend if effectively connected with the conduct of a trade or
business of the Non-U.S. Holder within the United States, the dividend generally
will be subject to United States federal income tax on a net income basis at
applicable graduated individual or corporate rates and will be exempt from the
30% withholding tax described above (assuming the necessary certification and
disclosure requirements are met). Any such effectively connected dividends
received by a foreign corporation may, in certain circumstances, be subject to
an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. If a dividend is effectively
connected with conduct of a trade or business by a nonpublicly traded
partnership, and any portion of the dividend is allocable under IRC Section 704
to a foreign partner, United States federal income tax is withheld at the
highest individual rate (if the foreign partner is not a corporation) and at the
highest corporate rate (if the foreign partner is a corporation), regardless of
whether the dividend is distributed to the foreign partner. A publicly traded
partnership is required to withhold tax on such a dividend only upon actual
distribution to a foreign partner, unless it elects to be subject to the
withholding rules applicable to nonpublicly traded partnerships.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country (i) for purposes of the withholding discussed above (unless the payor
has knowledge to the contrary), and (ii), under the current interpretation of
United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under proposed United States Treasury
regulations not currently in effect, however, a Non-U.S. Holder of Common Stock
who wishes to claim the benefit of an applicable treaty rate would be required
to file certain forms and meet other certification requirements.
A Non-U.S. Holder of Common Stock who is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate, timely claim for
refund with the United States Internal Revenue Service ("Service").
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) subject to the exception discussed below, the Company is or has been
a "United States real property holding corporation" (a "USRPHC") within the
meaning of IRC Section 897(c)(2) at any time within the shorter of the five year
period preceding such disposition or the period during which such Non-U.S.
Holder held the Common Stock (the "Required Holding Period"); (ii) the gain is
effectively connected with the conduct of a trade or business within the United
States of the Non-U.S. Holder and, if a tax treaty applies, attributable to a
permanent establishment maintained by the Non-U.S. Holder; (iii) the Non- U.S.
Holder is an individual who holds the share of Common Stock as a capital asset
and is present in the United States for 183 days or more in the taxable year of
the disposition and either (a) such individual has a "tax home" (as defined for
United States federal income tax purposes) in the United States or (b) the gain
is attributable to an office or other fixed place of business maintained in the
United States by such individual; or (iv) the Non-U.S. Holder is subject to tax
pursuant to the IRC provisions applicable to certain United States expatriates.
If an individual Non-U.S. Holder falls under clause (ii) or (iv) above, he or
she will be taxed on his or her net gain derived from the sale under regular
United States federal income tax rates. If the individual Non-U.S. Holder falls
only under clause (iii) above, he or she will be subject to a flat 30% tax on
the gain derived from the sale which may be offset by losses, allocable to
sources within the United States, from sale or exchange of capital assets at any
time during the year (notwithstanding the fact that he or she is not considered
a resident of the United States). If a Non-U.S. Holder that is a foreign
corporation falls under clause (ii) above, it will be taxed on its gain under
regular graduated United States federal income tax rates and, in addition, will
under certain circumstances be subject to the branch profits tax equal to 30% of
its "effectively connected earnings and profits" within the meaning of the IRC
for the taxable year, as adjusted for certain items, unless it qualifies for a
lower rate under an applicable income tax treaty.
A corporation is generally a USRPHC if the fair market value of its United
States real property interest equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interest plus its other assets used
or held for use in a trade or business. The Company believes that it is not
currently a USRPHC; however, even if the Company met the test for a USRPHC, a
Non-U.S. Holder would generally not be subject to
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<PAGE>
tax, or withholding in respect of such tax, on gain from a sale or other
disposition of Common Stock solely by reason of the Company's USRPHC status if
the common Stock is regularly traded on an established securities market
("regularly traded") during the calendar year in which such sale or disposition
occurs, provided that such holder does not own, actually or constructively,
Common Stock with a fair market value in excess of 5% of the fair market value
of all Common Stock outstanding at any time during the Required Holding Period.
The Company believes that the Common Stock will be treated as regularly traded.
If the Company is or has been a USRPHC within the required Holding Period,
and if a Non-U.S. Holder owns or, at any time during the Required Holding
Period, owned in excess of 5% of the fair market value of Common Stock (as
described in the preceding paragraph), such Non-U.S. Holder of Common Stock
would be subject to United States federal income tax at regular graduated rates
under certain rules ("FIRPTA tax") on gain recognized on a sale or other
disposition of such Common Stock. In addition, if the Company is or has been a
USRPHC within the Required Holding Period and if the Common Stock is not treated
as regularly traded, a Non- U.S. Holder (without regard to its ownership
percentage) would be subject to withholding in respect to FIRPTA tax at a rate
of 10% of the amount realized on a sale or other disposition of Common Stock and
would be further subject to FIRPTA tax in excess of the amounts withheld. Any
amount withheld pursuant to such withholding tax would be creditable against
such Non-U.S. Holder's United States federal income tax liability. Non-U.S.
Holders are urged to consult their tax advisors concerning the potential
applicability of these provisions.
Federal Estate Taxes
Common Stock owned, or treated as owned, by an individual Non-U.S. Holder
at the time of his or her death will be included in such holder's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
United States Information Reporting and Backup Withholding Tax
The Company must report annually to the Service and to each Non-U.S. Holder
of the amount of dividends paid to such holder and the tax withheld with respect
to such dividends. These information reporting requirements apply regardless of
whether withholding is required. Copies of the information returns reporting
such dividends and the withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder resides under the
provisions of an applicable income tax treaty or other agreement with the tax
authorities in that country.
Backup withholding of United States federal income tax (which, in general,
is a withholding tax imposed at the rate of 31% on certain payments to persons
that fail to furnish certain information under the United States information
requirements) generally will not apply to (i) the payment of dividends paid on
Common Stock to a Non- U.S. Holder at an address outside the United States or
(ii) the payment of the proceeds of the sale of Common Stock to or through the
foreign office of a broker. Under temporary regulations, backup withholding is
not required with respect to payment of proceeds from a sale of Common Stock by
a Non-U.S. Holder through a foreign office of a broker that is a United States
person or a "U.S. related person." In the case of the payment of proceeds from a
sale of Common Stock through a foreign office of a broker that is a United
States person or a "U.S. related person," information reporting is required with
respect to the payment unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder (and has no actual knowledge to the
contrary) and certain other requirements are met or the holder otherwise
establishes an exemption. As used above, a "U.S. related person" is (i) a
"controlled foreign corporation" for United States federal income tax purposes,
or (ii) a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
United States trade or business. The payment of the proceeds of a sale of shares
of Common Stock to or through a United States office of a broker is subject to
information reporting and possible backup withholding unless the owner certifies
its Non-U.S. Holder status under penalties of perjury or otherwise establishes
an exemption. Any amounts withheld under the backup withholding rules from a
payment to a Non-U.S. Holder will be allowed a refund or a credit against such
Non-U.S. Holder's United States federal income tax liability, provided that the
required information is furnished to the Service.
34
<PAGE>
These information reporting and backup withholding rules are under
review by the United States Treasury, and their application to the Common Stock
could be changed prospectively by future regulations.
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement, the U.S. Underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Cowen & Company and SoundView Financial Group, Inc. are acting as
U.S. Representatives (the "U.S. Underwriters"), have severally agreed to
purchase, and the Company has agreed to sell to them, and the International
Underwriters named below, for whom Morgan Stanley & Co. International Limited,
Cowen & Company and SoundView Financial Group, Inc. are acting as International
Representatives (the "International Underwriters"), have severally agreed to
purchase, and the Company has agreed to sell to them, the respective number of
shares of the Company's Common Stock set forth opposite their respective names
below:
Number
Name of Shares
---- ---------
U.S. Underwriters:
Morgan Stanley & Co. Incorporated................
Cowen & Company..................................
SoundView Financial Group, Inc...................
Subtotal......................................... 4,200,000
International Underwriters:
Morgan Stanley & Co. International Limited.......
Cowen & Company ................................
SoundView Financial Group, Inc...................
Subtotal......................................... 1,050,000
---------
Total......................................... 5,250,000
=========
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all of the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
shares are taken.
35
<PAGE>
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions (a) it
is not purchasing any U.S. Shares (as defined below) for the account of anyone
other than a United States or Canadian Person (as defined below) and (b) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
U.S. Shares or distribute any prospectus relating to the U.S. Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that with certain
exceptions (a) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (b) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Agreement Between U.S. and
International Underwriters. With respect to any Underwriter that is a U.S.
Underwriter and an International Underwriter, the foregoing representations and
agreements (a) made by it in its capacity as a U.S. Underwriter shall apply only
to shares of Common Stock purchased by it in its capacity as a U.S. Underwriter,
(b) made by it in its capacity as an International Underwriter shall apply only
to shares of Common Stock purchased by it in its capacity as an International
Underwriter and (c) shall not restrict its ability to distribute any prospectus
relating to the shares of Common Stock to any person. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside of the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is not otherwise a United
States or Canadian Person, and "United States" means the United States of
America, its territories, its possessions and all areas subject to its
jurisdiction. All shares of Common Stock to be offered by the U.S. Underwriters
and International Underwriters under the Underwriting Agreement are referred to
herein as the "U.S. Shares" and the "International Shares," respectively.
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and the International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price and
currency of any shares of Common Stock so sold shall be the Price to Public set
forth on the cover page hereof, in United States dollars, less an amount not
greater than the per share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that is has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada, in contravention of the securities laws
thereof and has represented that any offer of such shares in Canada will be made
only pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
shares of Common Stock a notice stating in substance that, by purchasing such
shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, directly or indirectly, any of such shares in any
province or territory of Canada in contravention of the securities laws thereof,
that any offer of shares of Common Stock in Canada will be made only pursuant to
an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer is made and that such dealer will
deliver to any other dealer to whom it sells any of such shares a notice to the
foregoing effect.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented that (a) it has not offered or sold
and, prior to the date six months after the closing date for the sale of the
Common Stock to the International Underwriters, will not offer or sell, any
shares of Common Stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 (the "Regulations"); (b) it has complied
and will comply with all applicable provisions of the Financial Services Act
1986 and the Regulations with respect to anything done by it in relation to such
shares in, from or otherwise involving the United Kingdom; and (c) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issue of such shares,
if that person is of a kind described in Article 11(3) of the
36
<PAGE>
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such document may otherwise lawfully be issued or passed
on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and will not offer or sell, directly or indirectly, in Japan or to or for
the account of any resident thereof, any shares of Common Stock acquired in
connection with the offering, except for offers or sales to Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law of Japan and
otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of such shares of Common Stock a notice stating in substance that,
by purchasing such shares, such dealer represents and agrees that it has not
offered or sold and will not offer or sell any of such shares, directly or
indirectly, in Japan or to or for the account of any resident thereof, except
for offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law of Japan and otherwise in compliance with applicable provisions
of Japanese law, and that such dealer will send to any other dealer to whom it
sells any of such shares a notice containing substantially the same statement as
is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock offered hereby directly to the public at the Price to Public set forth on
the cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $______ per share under the public offering price.
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $_______ per share to other Underwriters or to certain other dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 787,500 shares of Common Stock at
the Price to Public set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, incurred in
the sale of the shares of Common Stock offered hereby. To the extent such option
is exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such U.S. Underwriters' name in the
preceding table bears to the total number of shares of Common Stock offered
hereby to the U.S. Underwriters.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company, directors and executive officers of the Company and the
Selling Shareholders have agreed in the Underwriting Agreement, with certain
exceptions, not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exchangeable for Common Stock, for a period of at least 90 days after the date
of this Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated, on behalf of the several Underwriters.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering if the syndicate repurchases previously distributed
Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Underwriters and dealers may engage in passive market marking
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission (the
37
<PAGE>
"Commission"). In general, a passive market maker may not bid for, or purchase,
the Common Stock at a price that exceeds the highest independent bid. In
addition, the net daily purchases made by any passive market maker generally may
not exceed 30% of its average daily trading volume in the Common Stock during a
specified two month prior period, or 200,000 shares, whichever is greater. A
passive market maker must indemnify passive market making bids as such on the
Nasdaq electronic inter-dealer reporting system. Passive market making may
stabilize or maintain the market price of the Common Stock above independent
market levels. Underwriters and dealers are not required to engage in passive
market making and may end passive market making activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Stoel Rives LLP, Portland,
Oregon, and for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 30, 1995 and December
28, 1996 and for each of the three years in the period ended December 28, 1996
included in this Prospectus have been so included, in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
Sequent is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the public reference facilities in the Regional Offices of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Centers, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of these materials can be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Certain of such reports, proxy statements and other
information are also available from the Commission on the Internet at
http://www.sec.gov. The Company's Common Stock is quoted for trading in the
Nasdaq National Market and reports, proxy statements and other information
concerning the Company may be inspected at the offices of the National
Association of Securities Dealers, Inc., 9513 Key West Avenue, Rockville,
Maryland 20850.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is hereby
made to the Registration Statement, copies of which are available from the
Public Reference Section of the Commission at prescribed rates, as discussed
above. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete, and
in each instance in which a copy of such contract or document is filed as an
exhibit to the Registration Statement or another document filed by the Company
with the Commission, reference is made to such copy and each such statement
shall be deemed qualified in all respects by such reference. The Registration
Statement may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained from
the Public Reference Section, Securities and Exchange Commission, Washington,
D.C. 20549, upon payment of the prescribed fees.
38
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants..........................................F-2
Consolidated Balance Sheets at December 30, 1995, December 28,
1996 and March 29, 1997.................................................F-3
For the Fiscal Years Ended December 31, 1994, December 30, 1995 and
December 28, 1996 and for the three months ended March 30, 1996
and March 29, 1997:
Consolidated Statements of Operations...................................F-4
Consolidated Statements of Shareholders' Equity.........................F-5
Consolidated Statements of Cash Flows...................................F-6
Notes to Consolidated Financial Statements ................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Sequent Computer Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Sequent Computer Systems, Inc. and its subsidiaries at December 28, 1996 and
December 30, 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 28, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Portland, Oregon
January 23, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
Dec. 30, 1995 Dec. 28, 1996 March 29, 1997
------------- ------------- --------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 61,939 $ 37,979 $ 35,941
Restricted deposits 39,642 44,655 31,878
Receivables, net 178,322 209,752 185,716
Inventories 60,853 74,491 84,807
Prepaid royalties and other 13,464 30,577 34,738
Total current assets 354,220 397,454 373,080
-------- -------- --------
Property and equipment, net 98,165 133,838 139,981
Capitalized software costs, net 45,381 59,567 61,762
Other assets, net 6,157 21,150 20,931
-------- -------- --------
Total assets $503,923 $612,009 $595,754
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Notes payable $ 41,146 $ 59,925 $ 56,198
Accounts payable and other 60,095 88,119 74,575
Accrued payroll 11,723 24,853 17,261
Unearned revenue 21,466 30,787 35,023
Income taxes payable 4,981 3,017 2,822
Current obligations under capital leases and
debt 60 7,325 8,978
-------- -------- --------
Total current liabilities 139,471 214,026 194,857
Other accrued expenses 2,158 6,671 6,884
Long-term obligations under capital leases and debt 9,106 16,503 14,418
-------- -------- --------
Total liabilities 150,735 237,200 216,159
======== ======== ========
Commitments and contingencies (Notes 6, 10 and 12)
Shareholders' equity:
Common stock $.01 par value, 100,000
shares authorized, 33,221, 34,188
and 34,840 shares outstanding 332 342 348
Paid-in capital 304,343 315,316 322,458
Retained earnings 52,945 60,715 61,423
Foreign currency translation adjustment (4,432) (1,564) (4,634)
-------- -------- --------
Total shareholders' equity 353,188 374,809 379,595
-------- -------- --------
Total liabilities and shareholders'
equity $503,923 $612,009 $ 595,754
======== ======== =========
</TABLE>
- --------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements
F-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Fiscal Year Ended Three Months Ended
---------------------------------------------------------------
Dec. 31, Dec. 30, Dec.28, Mar. 30, Mar. 29,
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Product $ 341,504 $ 395,941 $ 414,418 $ 81,109 $ 105,567
Service 109,319 144,404 180,944 39,636 51,807
--------- --------- --------- --------- ---------
Total revenue 450,823 540,345 595,362 120,745 157,374
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of products sold 164,991 188,232 197,702 38,653 50,455
Cost of service revenue 77,238 107,721 139,983 30,611 38,799
Research and development 35,047 40,923 53,733 12,262 15,442
Selling, general and
administrative 134,070 154,950 191,069 38,245 50,250
--------- --------- --------- --------- ---------
Total costs and expenses 411,346 491,826 582,487 119,771 154,946
--------- --------- --------- --------- ---------
Operating income 39,477 48,519 12,875 974 2,428
Interest income 3,515 5,340 3,007 885 686
Interest expense (4,687) (4,207) (3,187) (672) (1,936)
Other income (expense), net 495 (2,325) (2,019) (363) (142)
--------- --------- --------- --------- ---------
Income before provision for income
taxes 38,800 47,327 10,676 824 1,036
Provision for income taxes 5,666 12,254 2,905 226 328
--------- --------- --------- --------- ---------
Net income $ 33,134 $ 35,073 $ 7,771 $ 598 $ 708
========= ========= ========= ========= =========
Net income per share $ 1.03 $ 1.04 $ 0.23 $ .02 $ .02
========= ========= ========= ========= =========
Weighted average number of common
and common equivalent shares
outstanding 32,028 33,665 34,254 33,616 36,643
========= ========= ========= ========= =========
</TABLE>
- ------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Retained Foreign
earnings currency
Common Stock Paid-in (accumulated translation
Shares Amount capital deficit) adjustment Total
------ ------ ------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 30,245 $ 302 $ 265,910 $ (15,262) $ (7,462) $ 243,488
Common shares issued 1,115 12 12,235 -- -- 12,247
Net income -- -- -- 33,134 -- 33,134
Foreign currency translation
adjustment -- -- -- -- 2,326 2,326
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1994 31,360 314 278,145 17,872 (5,136) 291,195
Common shares issued 1,798 18 20,455 -- -- 20,473
Tax benefit of option exercises -- -- 4,743 -- -- 4,743
Conversion of debentures 63 -- 1,000 -- -- 1,000
Net income -- -- -- 35,073 -- 35,073
Foreign currency translation
adjustment -- -- -- -- 704 704
--------- --------- --------- --------- --------- ---------
Balance, December 30, 1995 33,221 332 304,343 52,945 (4,432) 353,188
Common shares issued 967 10 9,622 -- -- 9,632
Tax benefit of option exercises -- -- 175 -- -- 175
Warrants issued -- -- 1,176 -- -- 1,176
Net income -- -- -- 7,771 -- 7,771
Foreign currency translation
adjustment -- -- -- -- 2,868 2,868
Rounding -- -- -- (1) -- (1)
--------- --------- --------- --------- --------- ---------
Balance, December 28, 1996 34,188 342 315,316 60,715 (1,564) 374,809
Common shares issued 652 6 6,879 -- -- 6,885
Tax benefit of option exercises -- -- 263 -- -- 263
Net income -- -- -- 708 -- 708
Foreign currency translation
adjustment -- -- -- -- (3,070) (3,070)
--------- --------- --------- --------- --------- ---------
Balance, March 29, 1997
(unaudited) 34,840 $ 348 $ 322,458 $ 61,423 $ (4,634) $ 379,595
========= ========= ========= ========= ========= =========
</TABLE>
- ------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements
F-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended Three Months Ended
----------------------------------- ----------------------
Dec. 31, Dec. 30, Dec.28, Mar. 30, Mar. 29,
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income $ 33,134 $ 35,073 $ 7,771 $ 598 $ 708
Reconciliation of net income to net
cash and cash equivalents provided by
operating activities-
Depreciation and amortization 44,600 52,094 65,534 14,641 19,515
Changes in assets and liabilities-
Receivables, net (18,010) (44,751) (31,430) 33,891 24,036
Inventories (2,833) (12,155) (13,638) (15,159) (10,316)
Prepaid royalties and other (403) (652) (17,113) (4,104) (4,161)
Accounts payable and other (17,072) 13,351 28,024 (5,419) (13,544)
Accrued payroll 891 (71) 13,130 2,193 (7,592)
Unearned revenue 2,593 11,750 9,321 3,660 4,236
Income taxes payable 2,835 1,131 (1,964) (113) (195)
Other accrued expenses 314 58 4,513 412 204
--------- --------- --------- --------- ---------
Net cash provided by operating activities 46,049 55,828 64,148 30,600 12,891
--------- --------- --------- --------- ---------
Cash flow from investing activities:
Restricted deposits (27,158) 19,795 (5,013) 1,957 12,777
Investments 5,000 -- -- -- --
Purchases of property and equipment, net (40,256) (38,923) (80,617) (17,220) (19,237)
Capitalized software costs (19,116) (23,444) (34,170) (7,531) (8,388)
Foreign currency translation adjustment 2,326 2,861 2,868 (1,194) (3,070)
Other assets, net 399 (4,262) (15,600) -- --
--------- --------- --------- --------- ---------
Net cash used for investing activities (78,805) (43,973) (132,532) (23,988) (17,918)
--------- --------- --------- --------- ---------
Cash flow from financing activities:
Notes payable, net 27,158 (18,291) 18,779 (3,182) (3,727)
Proceeds (payments) under capital lease
obligations (3,293) (719) 14,662 244 (443)
Long-term debt (payments) proceeds, net (51) (256) -- -- 11
Stock issuance proceeds, net 12,247 23,059 10,983 2,470 7,148
--------- --------- --------- --------- ---------
Net cash provided by financing activities 36,061 3,793 44,424 (468) 2,989
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 3,305 15,648 (23,960) 6,144 (2,038)
Cash and cash equivalents at beginning of
period 42,986 46,291 61,939 61,939 37,979
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 46,291 $ 61,939 $ 37,979 $ 68,083 $ 35,941
========= ========= ========= ========= =========
</TABLE>
- -------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements
F-6
<PAGE>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sequent Computer Systems, Inc. and subsidiaries ("Sequent" or the
"Company") was incorporated in January 1983. Sequent is a provider of scalable
data-center-ready open systems solutions for large organizations spanning
diverse industries. Sequent designs, manufactures and markets high-performance
symmetric multiprocessing ("SMP") and cache coherent non-uniform memory access
("CC-NUMA") computer systems and operating environment software. The Company's
systems are widely used for large-scale on-line transaction processing ("OLTP"),
applications in decision support systems ("DSS") and data warehouses, for custom
applications built upon relational database management systems ("RDBMS"), and as
the central server in client- server architectures. Sequent's project-oriented
offerings include a complete portfolio of customer, professional and education
services to solve complex information technology ("IT") problems. The Company
has an established set of partnerships with other software, hardware and
services providers to deliver complete solutions to its customers.
Principles of Consolidation. The Company's fiscal year is based on a 52-53
week year ending the Saturday closest to December 31. The consolidated financial
statements of the Company include accounts of Sequent Computer Systems, Inc. and
its wholly-owned subsidiaries. All significant intercompany accounts and profits
have been eliminated.
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currencies and translated into
U.S. dollars for purposes of consolidation. Translation adjustments are
accumulated as a separate component of shareholders' equity. Gains and losses
resulting from transactions denominated in a currency other than an entity's
functional currency are included in other income (expense) in the consolidated
statements of operations. During 1994 the Company realized a net pretax gain of
$1.1 million as a result of positive impact of changes in exchange rates,
primarily in the United Kingdom. Net losses aggregating $0.3 million and $0.8
million, for 1995 and 1996 respectively, were realized from such transactions.
Revenue Recognition and Receivables. Revenue from product sales is
generally recognized upon shipment; however, depending upon contract terms,
revenue recognition may be deferred until customer acceptance or clarification
of funding. Revenue is recognized as earned on the straight-line basis over the
term of customer service/maintenance contracts, and on either the
percentage-of-completion or milestone achievement basis for professional service
contracts.
Receivables are shown net of allowance for doubtful accounts of $2.8
million at both December 30, 1995 and December 28, 1996.
The Company has an agreement with a group of banks to sell, without
recourse, undivided ownership interests in a revolving pool consisting of
substantially all of the Company's domestic accounts receivable for a maximum of
$20 million. The agreement expires May 29, 1998. At December 30, 1995 and
December 28, 1996, accounts receivable in the accompanying consolidated balance
sheets is net of $14 million and $20 million, respectively, received by the
Company under this agreement.
The Company had no single customer that represented greater than 10% of
total revenue in 1994, 1995 and 1996.
Inventories. Inventories are stated at the lower of cost or market. Costs
are determined using the first-in, first-out (FIFO) method and include material,
labor and manufacturing overhead.
Prepaid Licenses and Royalties. The Company has entered into agreements
with various vendors which provide for prepayment of future licenses and
royalties based on sales of certain software. Prepaid licenses and royalties
were $3.6 million at December 30, 1995 and $28.4 million at December 28, 1996
and are stated at the lower of cost or net realizable value. Approximately $1.2
million and $16.1 million were included in prepaid
F-7
<PAGE>
royalties and other current assets at December 30, 1995 and December 28, 1996,
respectively. Such prepaid amounts are realized by receipt of reverse royalties
from the vendors based upon software sales by the vendor, and/or by charging
cost of products sold for certain software sales by the Company.
Property and Equipment. Property and equipment are stated at cost and
depreciated over their estimated useful lives, ranging from three to five years,
on the straight-line method. Leasehold improvements and equipment held under
capital leases are amortized on the straight-line basis over the shorter of the
asset life or lease term. Maintenance and repairs are expensed as incurred.
Research and Development. Software development costs for certain projects
are capitalized from the time technological feasibility is established to the
time the resulting software product is first shipped. Capitalized software costs
are stated at the lower of cost or net realizable value and are shown net of
accumulated amortization of $58.3 million at December 30, 1995 and $38.4 million
at December 28, 1996. Amortization, generally based on a three-year
straight-line basis, was $12.8 million in 1994, $16.6 million in 1995 and $20
million in 1996. All other research and development costs are expensed as
incurred.
Income Taxes. The Company's general practice is to reinvest the earnings of
its foreign subsidiaries in those operations, unless it would be advantageous to
the Company to repatriate the foreign subsidiaries' retained earnings.
Per Share Information. Primary earnings per share is computed based on the
weighted average number of common and dilutive common equivalent shares
outstanding. Outstanding stock options, net of assumed buy- back, are common
stock equivalents. The computation of fully dilutive earnings per share also
assumes conversion of the remaining 7.5% Convertible Subordinated Debentures
issued April 1992 when it would be dilutive. A fully diluted earnings per share
amount is not shown as the effect of the debentures would be antidilutive.
Consolidated Statement of Cash Flows. The Company considers short-term
investments which are highly liquid, readily convertible into cash and have
original maturities of less than three months to be cash equivalents for
purposes of the statement of cash flows.
Total cash expenditures for income taxes were $2.3 million, $5.3 million
and $5.9 million during 1994, 1995 and 1996, respectively. Interest paid does
not differ materially from interest expense.
Non-cash investing and financing activities include the following: 1995 -
$1 million of Convertible Debentures were converted into 63,000 shares of common
stock; 1996 - 300,000 stock warrants, valued at $1.2 million using the
Black-Scholes pricing model, were issued in exchange for other non-current
assets.
Management Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Reclassifications. Certain prior year amounts have been reclassified to
conform to fiscal 1996 presentation. These changes had no impact on previously
reported results of operations or shareholders' equity.
New Accounting Pronouncements. In March 1995, the Financial Accounting
Standards Board issued the Statement of Financial Accounting Standards No. 121
(FAS 121), Accounting for the Impairment of Long-Lived Assets and For Long-Lived
Assets to Be Disposed Of. FAS 121 requires that long-lived assets and certain
identifiable intangible assets held and used by a company be reviewed for
impairment whenever events or changes in circumstances indicate that expected
future cash flows (undiscounted and without interest charges) may not be
sufficient to support the recorded assets. If undiscounted cash flows are not
sufficient to support the recorded assets, an impairment is recognized to reduce
the carrying value of the assets based on the expected discounted cash flows.
The Company adopted the statement in 1996; however, the adoption did not have a
material impact on the Company's financial statements.
F-8
<PAGE>
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS
123 allows companies to choose whether to account for stock-based compensation
on a fair value method or to continue to account for stock-based compensation
under the current intrinsic value method as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company adopted SFAS 123 during
1996, and has elected to continue to follow the provisions of APB Opinion No.
25. (Note 8)
2. INVENTORIES
(In thousands)
(unaudited)
December 30, December 28, Mar. 29,
1995 1996 1997
------------ ------------ --------
Raw materials $ 9,385 $ 14,205 $ 16,417
Work-in-progress 1,736 2,166 5,045
Finished goods 49,732 58,120 63,345
---------- --------- --------
$ 60,853 $ 74,491 $ 84,807
========== ========= ========
Finished goods inventory includes evaluation systems aggregating $15.7
million and $30.8 million as of December 30, 1995 and December 28, 1996,
respectively. Such systems are located at potential customer sites for
demonstration.
3. PROPERTY AND EQUIPMENT
(In thousands)
(unaudited)
December 30, December 28, Mar. 29,
1995 1996 1997
------------ ------------ --------
Land $ 5,037 $ 5,037 $ 5,037
Operational equipment 134,897 174,662 188,488
Furniture and office equipment 67,010 89,951 94,207
Leasehold improvements 15,974 22,584 23,271
---------- --------- --------
222,918 292,234 311,003
Less accumulated depreciation
and amortization (124,753) (158,396) (171,022)
---------- --------- --------
$ 98,165 $ 133,838 $139,981
========== ========= ========
Depreciation and amortization charged to expense totaled $31.8 million in
1994, $35.0 million in 1995 and $44.9 million in 1996.
4. NOTES PAYABLE
The Company has an unsecured line of credit agreement with a group of banks
which provides short-term borrowings up to $80 million (increased in the second
quarter of 1997 from $70 million). The line of credit agreement contains
financial covenants, including covenants relating to net worth, ratio of
liabilities to net worth and limitations on net operating losses, and prohibits
the Company from paying dividends without the group of banks' consent. The line
of credit agreement extends through May 29, 1998. At December 30, 1995, there
were no borrowings outstanding under the line of credit. At December 28, 1996,
$12.2 million was outstanding under this line of credit agreement, and at March
29, 1997, $20.5 million was outstanding. The interest rate on this borrowing at
December 28, 1996 was 8.25%.
The Company has a short-term borrowing agreement with a foreign bank as a
hedge to cover certain foreign currency exposures. Borrowings under the
agreement are denominated in various foreign currencies. Proceeds from the
borrowings are converted into U.S. dollars and placed in a term deposit account
with the foreign
F-9
<PAGE>
bank. The deposits, which are classified as restricted deposits in the
accompanying consolidated balance sheets, are pledged to the foreign bank so
long as borrowings under the agreement are outstanding. During July 1996, the
Company re-negotiated the agreement and extended it through July 1997. The
foreign bank, without cause, can terminate the agreement at any time. At
December 28, 1996, maximum borrowings allowed under the agreement were $57.2
million. Amounts outstanding were $39.6 million and $44.7 million at December
30, 1995 and December 28, 1996, respectively. The maximum borrowing limit is
denominated in specified foreign currencies and fluctuates with the change in
foreign exchange rates. The average interest rate on these borrowings at
December 28, 1996 was 4.8%.
In addition to the above borrowing agreements, the Company has entered into
certain other miscellaneous borrowing arrangements with a foreign bank. Amounts
outstanding were $1.5 million and $0.9 million at December 30, 1995 and December
28, 1996, respectively. The interest rate on these borrowings was 1.5% at
December 28, 1996.
During 1996 a U.S. subsidiary of the Company entered into a financing
arrangement with third parties for $2.2 million, of which $1 million is with a
related party. The financing consists of short-term convertible notes with an
interest rate of 10% due February 23, 1997. At the option of the holders, the
notes may be converted into capital stock of the subsidiary. The notes were
converted into Common Stock of the subsidiary on June 1, 1997.
5. OBLIGATIONS UNDER CAPITAL LEASES AND LONG-TERM DEBT
In April 1992, the Company issued $20 million of 7.5% Convertible
Subordinated Debentures ("Convertible Debentures" or "Debentures") due March 31,
2000. In conjunction with the Company's equity offering in 1993, $9.9 million of
the Debentures were converted into 626,000 shares of common stock and are no
longer classified as long-term debt. The Convertible Debentures are convertible
into the Company's common stock at the option of the holders at an initial
conversion price of $15.81 per share. Under this provision, in August 1995, an
additional $1.0 million of the debentures were converted into 63,000 shares of
common stock, further reducing long-term debt. Beginning on June 30, 1997, the
Company is required to make quarterly principal payments of $1.7 million, unless
waived by the noteholder, through 1998 to retire the outstanding Debentures. All
noteholders have waived this requirement. The balance outstanding on the
Debentures was $9.1 million at December 30, 1995, December 28, 1996 and March
29, 1997. At December 28, 1996, $5.0 million is classified as current
obligations. The Convertible Debentures are callable at the option of the
Company after five years. The Debentures contain certain financial covenants,
including restrictions on additional debt, minimum net worth levels and a
prohibition on the payment of dividends.
Sequent leases certain equipment under five-year capital leases. These
lease terms require maintenance of certain financial ratios and generally
include a fair market value purchase option at the end of the lease. The cost of
equipment under capital leases was $0.4 million and $0.3 million at the end of
1995 and 1996, respectively. Accumulated amortization was $0.3 million and $0.1
million, respectively. These leased assets are pledged as security for capital
lease obligations.
In addition to the above capital leases, the Company entered into a
sales-leaseback transaction in September 1996 under which certain operating
equipment with a net book value of $12.2 million was sold for $15.3 million and
then leased back under a capital lease. The related lease terms stipulate
monthly payments ranging from $274,000 to $341,000 over the five-year lease term
beginning September 1996 at an annual interest rate of 7.4%. The resulting gain
of $3.1 million has been recorded under "Other Accrued Expenses" and is being
amortized in proportion to the related equipment depreciation over three years.
The terms of the lease include an asset buy-back provision at the end of the
lease for the then fair market value of the assets at the Company's option.
Future minimum lease payments are as follows (in thousands):
F-10
<PAGE>
1997 $ 3,285
1998 3,285
1999 3,960
2000 4,095
2001 2,730
--------
Total minimum lease payments 17,355
Less amount representing interest (2,849)
--------
Present value of minimum lease payments $ 14,506
========
6. OPERATING LEASE COMMITMENTS
Sequent is committed under operating leases for office space and
manufacturing facilities. Future minimum lease payments are as follows:
(In thousands)
1997 $ 19,052
1998 16,468
1999 13,051
2000 10,558
2001 and thereafter 22,390
-------
$ 81,519
Rent expense for operating leases was $15.1 million, $14.9 million and
$17.4 million in 1994, 1995, and 1996, respectively.
F-11
<PAGE>
7. INCOME TAXES
Pre-tax income from continuing operations for the last three fiscal years
was taxed under the following jurisdictions:
(In thousands)
Fiscal Fiscal Fiscal
1994 1995 1996
---- ---- ----
Domestic $ 27,332 $29,556 $ 5,593
Foreign 11,468 17,771 5,083
-------- ------- ---------
Total $ 38,800 $47,327 $ 10,676
======== ======= =========
The provision (benefit) for income taxes was as follows:
Fiscal Fiscal Fiscal
1994 1995 1996
---- ---- ----
Current:
Federal $ 1,420 $ 5,890 $ 789
Foreign 3,769 5,435 3,109
State 96 355 164
---------- -------- ---------
5,285 11,680 4,062
---------- -------- ---------
Deferred:
Federal -- -- (900)
Foreign 381 574 (257)
---------- -------- ---------
381 574 (1,157)
---------- -------- ---------
Total provision $ 5,666 $ 12,254 $ 2,905
========== ======== ========
F-12
<PAGE>
Deferred tax liabilities (assets) are comprised of the following
components:
(In thousands)
Dec. 30, 1995 Dec. 28,1996
------------- ------------
Research and development $ 17,534 $ 22,998
Other 2,929 1,567
--------- ---------
Gross deferred tax liabilities 20,463 24,565
--------- ---------
Net operating loss carryforwards:
Domestic (21,677) (24,985)
Foreign (8,733) (7,965)
Credit carryforwards (10,720) (12,741)
Expenses not currently deductible (7,586) (7,971)
Depreciation (798) (1,596)
Revenue currently taxable (945) (1,399)
Inventory basis differences (1,337) (556)
Restructuring costs (188) (71)
--------- ---------
Gross deferred tax assets (51,984) (57,284)
--------- ---------
Deferred tax asset valuation allowance 31,542 31,583
--------- ---------
Net deferred tax liability (asset) $ 21 $ (1,136)
========= =========
The provision for income taxes differs from the amount of income taxes
determined by applying the U.S. statutory federal tax rate to pre-tax income due
to the following:
Fiscal Fiscal Fiscal
1994 1995 1996
Statutory federal tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 4.2 4.2 4.2
Tax benefit from Foreign Sales Corporation (3.9) (1.6) (6.8)
Tax provision on foreign earnings (0.1) (2.1) (0.9)
Realized benefit from net operating losses (20.9) (9.6) (1.3)
Other, net 0.3 -- (3.0)
----- ------ ------
14.6% 25.9% 27.2%
===== ===== =====
The deferred tax asset valuation allowance in fiscal years 1994-1996 is
attributed to U.S. federal, state, and foreign deferred tax assets. Management
believes sufficient uncertainty exists with regard to the realizability of such
assets that a valuation allowance of $31.6 million has been provided at December
28, 1996. When and if these reserved deferred tax assets are ultimately
realized, $15.5 million will reduce the Company's federal and state tax
provision and $16.1 million will be credited to paid-in capital (related to
stock option deductions).
In accordance with FAS 109, the valuation allowance is allocated pro-rata
to federal, state, and foreign current and non-current deferred tax assets. The
net deferred tax liability at December 30, 1995 and the net deferred tax asset
at December 28, 1996 reflect foreign liabilities offset by U.S. assets.
The Company has accumulated unused research and development credits of $5.0
million for income tax purposes. These credits expire from 1998-2011. The
Company also has Alternative Minimum Tax Credits (AMT) which may be carried
forward indefinitely and certain state tax credits which expire from 1997-2001.
The Company may realize tax benefits as a result of the exercise of certain
employee stock options. For financial reporting purposes, any reduction in
income tax obligations as a result of these tax benefits is credited to
F-13
<PAGE>
paid-in capital. During 1995 and 1996, $4.7 million and $175,000 of benefits
were credited to paid-in capital, respectively, with a related reduction in
current taxes payable. No benefits were recognized in 1994.
An income tax provision has not been recorded for U.S. or additional
foreign taxes on undistributed earnings of foreign subsidiaries as the
undistributed earnings have been and will continue to be reinvested in
operations outside the United States.
8. SHAREHOLDERS' EQUITY
Common Stock. In 1995, $1.0 million of convertible debentures were
converted into 63,000 shares of common stock (Note 5).
Stock Compensation Plans. At December 28, 1996, the Company had the
following stock-based compensation plans:
Stock Option Plans
At December 28, 1996 the Company had options outstanding to employees and
non-employees under the following Stock Option Plans: 1984 Employee Stock Option
Plan and 1984 Nonstatutory Stock Option Plan (the "1984 Plans"), the 1987
Employee Stock Option Plan and 1987 Nonstatutory Stock Option Plan (the "1987
Plans"), the 1989 Stock Incentive Plan (the "1989 Plan"), the 1995 Stock
Incentive Plan and the 1996 Stock Option Plan. Options granted after May 18,
1995 were made under the 1995 Stock Incentive Plan and the 1996 Stock Option
Plan. As of December 28, 1996, the Company has reserved a total of 12,365,000
shares of common stock for issuance under these Plans, of which 6,909,440
options were outstanding at December 28, 1996. Employee and non-employee options
vest over varying time periods, generally ranging from one to four years, as
long as, in the case of employees, the optionee remains employed by Sequent.
Option prices generally have been at 85% or greater of the fair market value of
the common stock on the date of grant. Options generally expire ten years from
the date of the grant.
Employee Stock Purchase Plan
In September 1987, Sequent established an Employee Stock Purchase Plan.
Under the plan, Sequent is authorized to grant rights to purchase up to
5,550,000 shares of common stock in a series of eighteen-month offerings. At
December 28, 1996, there were 1,674,002 shares available for future purchase.
Substantially all employees are eligible to receive rights under the plan. The
purchase price is the lesser of 85% of the fair market value of the common stock
on the date of commencement of the offering or on the date of purchase. During
1994, 1995 and 1996, Sequent issued 467,479, 576,423 and 682,864 shares under
the plan, respectively.
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost related to stock options issued to employees under
these plans using the method of accounting prescribed by the Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting in APB 25 must make
pro forma disclosures of net income and earnings per share, as if the fair value
based method of accounting defined in this Statement has been applied.
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method prescribed in APB 25 and related
Interpretations. Accordingly, no compensation cost has been recognized in the
consolidated statements of operations for its stock-based compensation plans
other than for performance-based awards.
F-14
<PAGE>
Had compensation cost for the other stock-based compensation plans been
determined based on the fair value at the grant dates for awards under these
plans consistent with the method of FASB Statement 123, "Accounting for
Stock-Based Compensation", the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
(In thousands, except per share data)
Fiscal Fiscal
1995 1996
---- ----
Net income (loss) As reported $ 35,073 $ 7,771
Pro forma 30,959 (709)
Primary earnings (loss) per share
As reported $ 1.04 $ 0.23
Pro forma 0.91 (0.02)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1995 and 1996:
Fiscal Fiscal
1995 1996
---- ----
Risk-free interest rate 6.33% 6.05%
Expected dividend yield -- --
Expected lives 4 years 3 years
Expected volatility 55% 50%
The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for 1995 and 1996:
Fiscal Fiscal
1995 1996
---- ----
Risk-free interest rate 5.23% 5.58%
Expected dividend yield -- --
Expected lives 1 year 1 year
Expected volatility 55% 50%
The weighted-average per share fair value of those purchase rights granted in
1995 and 1996 was $15.51 and $13.15, respectively.
F-15
<PAGE>
A summary of the status of the Company's stock option plans as of December
30, 1995 and December 28, 1996, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
(In thousands, except per share data)
Fiscal Fiscal
1995 1996
----------------------------------- ----------------------------------
Weighted-Average Weighted-Average
Shares per share Shares per share
under option Exercise Price under option Exercise Price
------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 4,432 $ 11.63 5,068 $ 14.26
Granted:
Price equal to Fair Value 1,716 18.21 3,353 12.60
Price less than Fair Value 612 14.90 1,196 11.12
Exercised (1,056) 9.68 (196) 8.53
Forfeited (636) 14.78 (2,512) 16.55
----- -----
Outstanding at end of year 5,068 14.26 6,909 12.27
===== =====
Options exercisable at year-end 1,276 1,446
===== =====
Weighted-average per share fair value
of options granted during the year $8.46 $3.69
===== =====
</TABLE>
The following table summarizes information about stock options outstanding at
December 28, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted-
Number Weighted-Average Weighted-Average Number Average
Range of Outstanding Remaining per share Exercisable per share
Exercise Prices at 12/28/96 Contractual Life Exercise Price at 12/28/96 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.00 - $10.50 1,573,560 7.0 years $ 9.55 553,826 $ 8.61
$10.63 - $11.88 1,700,109 8.1 11.38 264,476 11.59
$11.90 - $13.88 1,435,227 7.7 12.86 272,295 13.28
$13.92 - $14.00 1,502,886 8.0 14.00 -- --
$14.03 - $22.31 697,658 7.3 15.62 355,511 15.77
---------- ---------
$0.00 - $22.31 6,909,440 7.7 12.27 1,446,108 11.79
========= =========
</TABLE>
F-16
<PAGE>
9. GEOGRAPHIC SEGMENT INFORMATION
Information about the Company's foreign operations and export sales is
provided in the table below. Foreign revenue is that which is produced by
identifiable assets located in foreign countries while export revenue is that
which is generated by identifiable assets located in the United States.
<TABLE>
<CAPTION>
(In thousands)
Fiscal Fiscal Fiscal
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
United States $ 233,246 $ 244,029 $ 270,571
Foreign:
Europe 177,320 242,133 262,396
Other 24,624 32,784 41,443
Export:
Other 15,633 21,399 20,952
--------- --------- ---------
$ 450,823 $ 540,345 $ 595,362
========= ========= =========
Operating income (loss):
United States $ 27,773 $ 27,184 $ 5,825
Foreign:
Europe 9,444 18,290 7,424
Other 2,260 3,045 (374)
--------- --------- ---------
$ 39,477 $ 48,519 $ 12,875
========= ========= =========
Identifiable assets:
United States $ 321,857 $ 367,196 $ 448,527
Foreign:
Europe 105,232 123,614 148,727
Other 8,888 13,113 14,755
--------- --------- ---------
$ 435,977 $ 503,923 $ 612,009
========= ========= =========
</TABLE>
Intercompany sales between geographic areas, primarily from the United
States to Europe, were $111.1 million during 1994, $131.0 million during 1995
and $155.7 million during 1996.
10. FOREIGN CURRENCY EXPOSURE
A substantial portion of the Company's business is conducted overseas
through its foreign subsidiaries, primarily in Europe. This exposes the Company
to risks associated with foreign currency rate fluctuations which can impact the
Company's revenue and net income. To mitigate this risk the Company enters into
foreign currency transactions with foreign and domestic banks on a continuing
basis in amounts and timing consistent with the underlying currency exposure so
that gains and losses on these transactions offset gains and losses on the
underlying exposure. The Company does not engage in any speculative trading
activity. See related discussion in Note 4.
In addition to the arrangements described in Note 4, at December 28, 1996,
the Company also has a forward exchange contract denominated in Japanese yen
with a contract amount of approximately $2.8 million. This forward contract is
used to hedge certain intercompany payables. The Company has also purchased
off-setting currency options and calls used to hedge certain anticipated but not
yet firmly committed transactions expected to be recognized within one year.
Gains and losses on such contracts have not been significant to date.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments.
F-17
<PAGE>
Cash and cash equivalents, restricted deposits, receivables, notes payable,
accounts payable and other and current obligations under capital leases and debt
are reflected in the consolidated financial statements at fair value because of
the short-term maturity of these instruments.
The fair value of long-term obligations under capital leases was estimated
by discounting the future cash flows using market interest rates and does not
differ significantly from the amount reflected in the consolidated financial
statements.
Due to the private nature of the Company's convertible debentures and the
subjectivity of assessing the impact of the Company's future common stock price,
the fair value of long-term debt is judged to be materially the same as that
reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
12. COMMITMENTS AND CONTINGENCIES
Lawsuits arise during the normal course of business. In the opinion of
management, none of the pending lawsuits will result in a significant impact on
the consolidated results of operations or financial position.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimated except
the SEC registration fee and the NASD filing fee.
SEC Registration Fee............................. $ 39,107
NASD Filing Fee.................................. 20,000
Printing and Engraving........................... 60,000
Legal Fees and Expenses.......................... 150,000
Accounting Fees and Expenses..................... 60,000
Transfer Agent and Registrar..................... 2,000
Blue Sky Fees and Expenses....................... 3,000
Miscellaneous.................................... 15,893
---------
Total................................... $ 350,000
=========
Item 15. Indemnification of Directors and Officers.
Article X of the Company's Articles of Incorporation provides for
indemnification of directors to the fullest extent not prohibited by the Oregon
Business Corporation Act (the "Act"). The Bylaws also contain indemnification
provisions. The effects of the Articles, Bylaws and the Act (the
"Indemnification Provisions") are summarized as follows:
(a) The Indemnification Provisions grant a right of indemnification in
respect of any action, suit or proceeding (other than an action by or in
the right of the Company) against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred, if the person concerned acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the Company, was not adjudged liable on the basis of receipt of an improper
personal benefit and, with respect to any criminal action or proceeding,
had not reasonable cause to believe the conduct was unlawful. The
termination of an action, suit, or proceeding by judgment, order,
settlement, conviction, or plea of nolo contendere does not, of itself,
create a presumption that the person did not meet the required standards of
conduct.
(b) The Indemnification Provisions grant a right of indemnification in
respect of any action or suit by or in the right of the Company against the
expenses (including attorneys' fees) actually and reasonably incurred if
the person concerned acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Company, except that no right of indemnification will be granted if the
person is adjudged to be liable to the Company.
(c) Every person who has been wholly successful on the merits of a
controversy described in (a) or (b) above is entitled to indemnification as
a matter of right.
(d) Because the limits of permissible indemnification under Oregon law
are not clearly defined, the Indemnification Provisions may provide
indemnification broader than that described in (a) and (b).
Section 10.6 of the Company's Bylaws provides that the Company will advance
to a director the expenses incurred in defending any action, suit or proceeding
in advance of its final disposition if the director or officer affirms in good
faith that he or she has met the standard of conduct to be entitled to
indemnification as described
II-1
<PAGE>
in (a) or (b) above and undertakes to repay any amount advanced if it is
determined that the person did not meet the required standard of conduct.
The Company's Articles and Bylaws provide that the Company may, in the
discretion of the Board of Directors, indemnify and advance expenses to officers
and employees to the same extent that directors are entitled to indemnification
and advancement of expenses.
The rights of indemnification described above are not exclusive of any
other rights of indemnification to which the person indemnified may be entitled
under any bylaw, agreement, vote of shareholders or directors, or otherwise.
The U.S. and International Underwriting Agreements provide for
indemnification by the Underwriters of officers and directors of the Company
under certain circumstances.
Item 16. Exhibits.
Exhibit
Number Description
- ------- -----------
1 Form of Underwriting Agreement.
4A Articles of Incorporation, as amended, of the Company.
(Incorporated by reference to Exhibit 4A to the Company's
Registration Statement on Form S-8 (File No. 33-63972).)
4B Bylaws, as amended, of the Company.
5 Opinion of Counsel
12 Statement Regarding Computation of Earnings per Share.
(Incorporated by reference to Exhibit 11 to the Quarterly
Report on Form 10-Q for the Quarter ended March 29, 1997
(File No. 0-15627).)
24A Consent of Price Waterhouse LLP (See page II-5).
24B Consent of Stoel Rives LLP (See Exhibit 5).
25 Powers of Attorney.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling
II-2
<PAGE>
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act and shall be deemed to be part of
the registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Beaverton, State of Oregon, on the 14th day of July,
1997.
SEQUENT COMPUTER SYSTEMS, INC.
By: ROBERT S. GREGG
-----------------------------------------
(Robert S. Gregg, Sr. Vice President-
Finance and Legal and Chief Financial
Officer)
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below on July 14, 1997, by the following persons in
the capacities indicated.
Signature Title
--------- -----
Chairman of the Board, President,
KARL C. POWELL, JR. * Chief Executive Officer and
- --------------------------------------- Director (Principal Executive
(Karl C. Powell, Jr.) Officer)
ROBERT S. GREGG Sr. Vice President-Finance and
- --------------------------------------- Legal and Chief Financial Officer
(Robert S. Gregg) (Principal Accounting and Financial
Officer)
STEVE CHEN * Director
- ---------------------------------------
(Steve Chen)
JOHN MCADAM * Director
- ---------------------------------------
(John McAdam)
ROBERT C. MATHIS * Director
- ---------------------------------------
(Robert C. Mathis)
MICHAEL S. SCOTT MORTON * Director
- ---------------------------------------
(Michael S. Scott Morton)
RICHARD C. PALERMO * Director
- ---------------------------------------
(Richard C. Palermo)
ROBERT W. WILMOT * Director
- ---------------------------------------
(Robert W. Wilmot)
*By ROBERT S. GREGG
-------------------------------------
Robert S. Gregg, Attorney-in-fact
II-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated January 23, 1997 relating
to the financial statements of Sequent Computer Systems, Inc., which appear in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
Portland, Oregon
July 11, 1997
II-5
EXHIBIT 1
5,250,000 Shares
SEQUENT COMPUTER SYSTEMS, INC.
COMMON STOCK, $0.01 PAR VALUE
UNDERWRITING AGREEMENT
_______________, 1997
<PAGE>
_______________, 1997
Morgan Stanley & Co. Incorporated
Cowen & Company
SoundView Financial Group, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Cowen & Company
SoundView Financial Group, Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Sequent Computer Systems, Inc., an Oregon corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below), and
certain stockholders of the Company (the "Selling Stockholders") named in
Schedule III hereto, severally propose to sell to the several Underwriters, an
aggregate of 5,250,000 shares of the Company's Common Stock, $0.01 per share par
value (the "Firm Shares"), of which 4,199,439 shares are to be issued and sold
by the Company and 1,050,561 shares are to be sold by the Selling Stockholders,
each Selling Stockholder selling the amount set forth opposite such Selling
Stockholder's name in Schedule III hereto. The Company and the Selling
Stockholders are hereinafter sometimes collectively referred to as the
"Sellers."
It is understood that, subject to the conditions hereinafter stated,
__________ Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and __________ Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated and Cowen
& Company and SoundView Financial Group, Inc. shall act as representatives (the
"U.S. Representatives") of the several U.S. Underwriters, and Morgan Stanley &
Co. International Limited and Cowen & Company and SoundView Financial Group,
Inc. shall act as representatives (the "International Representatives") of the
several International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.
-1-
<PAGE>
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 787,500 shares of the Company's Common
Stock, $0.01 per share par value (the "Additional Shares") if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf of
the U.S. Underwriters, the right to purchase such shares of common stock granted
to the U.S. Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares." The shares of
Common Stock, $0.01 per share par value, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus." If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect; and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph 1(b)
do not apply to statements or omissions in the Registration
-2-
<PAGE>
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole; all of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned directly
by the Company, free and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered by
the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the articles of incorporation or by-laws of the
Company or any agreement or other instrument binding upon the Company or any of
its subsidiaries that is material to the Company and its subsidiaries, taken as
a whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be
-3-
<PAGE>
required by the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(l) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
-4-
<PAGE>
(p) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such securities
with the Shares registered pursuant to the Registration Statement.
(q) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
(r) The financial statements of the Company and its subsidiaries,
together with related schedules and notes set forth in the Registration
Statement and the Prospectus, fairly present the financial condition of the
Company and its subsidiaries as of the dates indicated and the results of
operation and changes in financial position for the periods therein specified in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise disclosed therein) and
except as disclosed in the Prospectus, the other financial information and
financial and statistical data set forth in the Prospectus are fairly presented
and prepared on a basis consistent with such financial statements and the books
and records of the Company.
(s) Each of the Company and its subsidiaries owns or possesses all
patents, patent rights, trademarks, trade names, service marks, service names,
copyrights, license rights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other intellectual property rights necessary to carry on its
business in all material respects as presently conducted and, neither the
Company nor any of its subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to any of the foregoing
which in the aggregate, if the subject of any unfavorable decision, ruling or
finding, would result in any material adverse change in the condition, financial
or otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.
(t) The Company and its subsidiaries have filed all tax returns
required to be filed and are not in default in the payment of any taxes which
were payable pursuant to said returns or any assessments with respect thereto,
other than any which the Company or any such subsidiary is contesting in good
faith and other than where any such failures or defaults taken in the aggregate,
would not have a material adverse effect on the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.
(u) The accountants who have certified or shall certify the financial
statements filed or to be filed with the Commission as parts of the Registration
Statement and the Prospectus are independent public accountants as required by
the Securities Act.
(v) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering
-5-
<PAGE>
material in connection with the offering and sale of the Shares other than the
Registration Statement, the Prospectus or other materials, if any permitted by
the Securities Act.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) material transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to material assets is permitted
only in accordance with management's general or specific authorization; and (iv)
the recorded accountability for material assets is compared with existing
material assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) Neither the Company nor any of its subsidiaries nor any employee
or agent of the Company or any of its subsidiaries has made any payment of funds
of the Company or any subsidiary or received or retained any funds in violation
of any law, rule or regulation, which payment, receipt or retention of funds is
of a character required to be disclosed in the Prospectus.
(y) No material labor dispute with the employees of the Company or any
of its subsidiaries exists or, to the knowledge of the Company, is imminent; and
the Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers, manufactures or
contractors that could result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole.
(z) Each of the Company and its subsidiaries is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which it is engaged;
neither the Company nor any such subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor any such subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company and its subsidiaries,
taken as a whole.
2. Representations and Warranties of the Selling Stockholders. Each of the
Selling Stockholder, severally and not jointly, represents and warrants to each
of the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by
such Selling Stockholder and constitutes a valid and binding obligation upon
such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and
____________, as Custodian, relating to the deposit of the Shares to be sold by
such Selling Stockholder (the "Custody Agreement") and the
-6-
<PAGE>
Power of Attorney appointing certain individuals as such Selling Stockholder's
attorneys-in-fact to the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement (the "Power of Attorney")
will not contravene any provision of applicable law, or articles of
incorporation or by-laws or trust documents, as applicable, of such Selling
Stockholder, or any agreement or other instrument binding upon such Selling
Stockholder or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Stockholder, and no consent,
approval, authorization or order of or qualification with any governmental body
or agency is required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of Attorney
of such Selling Stockholder, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale of the
Shares.
(c) Such Selling Stockholder has, and on the Closing Date will have,
good and valid marketable title to the Shares to be sold by such Selling
Stockholder and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement and the Custody Agreement and
Power of Attorney of such Selling Stockholder, and to sell, transfer and deliver
the Shares to be sold by such Selling Stockholder.
(d) The Shares to be sold by such Selling Stockholder pursuant to this
Agreement have been duly authorized and are validly issued, fully paid and
non-assessable.
(e) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by such Selling Stockholder and are valid and
binding agreements of such Selling Stockholder.
(f) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, the Underwriters will receive
good and valid title to such Shares free and clear of any security interests,
claims, liens and other encumbrances.
(g) All information furnished by or on behalf of such Selling
Stockholder for use in the Registration Statement and Prospectus is, and on the
Closing Date will be, true, correct and complete, and does not, and on the
Closing Date will not, contain any untrue statement of a material fact or omit
to state any material fact necessary to make such information not misleading.
3. Agreements to Sell and Purchase. Each Seller, severally and not jointly,
hereby agrees to sell to the several Underwriters, and each Underwriter, upon
the basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from such Seller at U.S.$_______ a share (The "Purchase Price"), the
number of Shares (subject to such adjustments to eliminate fractional shares as
you may determine) that bears the same proportion to the number of Shares to be
sold by such Seller as the number of Shares set forth in Schedules I and II
hereto opposite the name of such Underwriter bears to the total number of
Shares.
-7-
<PAGE>
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 825,000
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares.
Each Seller hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 90 days after the date of the Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to
be sold hereunder or (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing. In addition, each Selling Stockholder agrees that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 90 days after the date of
the Prospectus, make any demand for, or exercise any right with respect to the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
U.S.$________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$_________ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$_________ a share, to any Underwriter or to certain other dealers.
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5. Payment and Delivery. Payment for the Firm Shares to be sold by each
Seller shall be made in Federal or other funds immediately available in New York
City against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 7:00 A.M., Pacific time, on __________, 199__, or at
such other time on the same or such other date, not later than __________,
199__, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares to be sold by the Company shall be made
in Federal or other funds immediately available in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 7:00 A.M., Pacific time, on the date specified in the notice
described in Section 2 or at such other time on the same or on such other date,
in any event not later than ___________, 199__, as shall be designated in
writing by the U.S. Representatives. The time and date of such payment, are
hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [_____], Pacific time, on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations of the Company and its subsidiaries, taken
as a whole, from that set forth in the Prospectus (exclusive of any amendments
or supplements thereto subsequent to the date of this
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Agreement) that, in your judgment, is material and adverse and that makes it, in
your judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in clause (a)(i) above and to the effect that
the representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date a
certificate on behalf of each respective Selling Stockholder, dated the Closing
Date, to the effect that the representations and warranties of such Selling
Stockholder are true and correct as of the Closing Date and that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied on or before the Closing
Date.
(d) The Underwriters shall have received on the Closing Date an
opinion of Stoel Rives LLP, outside counsel for the Company, dated the Closing
Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(ii) each subsidiary of the Company incorporated in a state of
the United States has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully paid and
non-assessable;
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(v) all of the issued shares of capital stock of each subsidiary
of the Company incorporated in a state of the United States have been duly and
validly authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances, equities or
claims;
(vi) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the articles of incorporation or
by-laws of the Company or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares by the U.S. Underwriters;
(ix) the statements (A) in the Prospectus under the captions
"Certain United States Tax Consequences to Non-United States Holders" and
"Underwriters," (B) in the Registration Statement in Items 14 and 15, and (C) in
the Company's Proxy Statement that has been incorporated by reference into the
Registration Statement under the captions "Proposal to Approve the 1997 Stock
Option Plan" and "proposal to Amend the Employee Stock Purchase Plan," in each
case insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(xi) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended;
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(xii) (A) such counsel is of the opinion that the Registration
Statement and Prospectus, including the documents that have been incorporated by
reference therein (except for financial statements and schedules and other
financial and statistical data included therein as to which such counsel need
not express any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) nothing has come to such counsel's attention that has caused
such counsel to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not express
any belief) the Registration Statement and the Prospectus included therein and
the documents that have been incorporated by reference therein at the time the
Registration Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (C) nothing has
come to such counsel's attention that has caused such counsel to believe that
(except for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief) the
Prospectus contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(xiii) no holders of Common Stock or other securities of the
Company have registration rights with respect to such securities that are
triggered by this offering, except for registration rights that have been waived
with respect to this offering.
(e) The Underwriters shall have received on the Closing Date an
opinion of Stoel Rives LLP, counsel for the Selling Stockholders, dated the
Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by each Selling Stockholder;
(ii) the execution and delivery by each Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations under, this
Agreement and the Custody Agreement and the Power of Attorney of such Selling
Stockholder will not contravene any provision of applicable law, or the articles
of incorporation or bylaws or trust documents, as applicable, of such Selling
Stockholder or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon such Selling Stockholder that is material to such
Selling Stockholder or, to the best of such counsel's knowledge, any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over such Selling Stockholder, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for the
performance by such Selling Stockholder of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares by the U.S.
Underwriters;
(iii) each Selling Stockholder has the legal right and power, and
all authorization and approval required by law, to enter into this Agreement and
the Custody Agreement and Power of Attorney of such Selling Stockholder and to
sell, transfer and deliver the Shares to be sold by such Selling Stockholder;
and, to such counsel's knowledge, such Selling Stockholder has
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valid marketable title to the Shares to be sold by such Selling Stockholder and
such sale, transfer and delivery is not subject to any right of first refusal or
other contractual restriction; and each of the certificates evidencing such
Shares is in proper legal form;
(iv) the Custody Agreement and the Power of Attorney of each
Selling Stockholder have been duly authorized, executed and delivered by such
Selling Stockholder and are valid and binding agreements of such Selling
Stockholder; and
(v) delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear of any
security interests, claims, liens, equities and other encumbrances.
(f) The Underwriters shall have received on the Closing Date an
opinion of __________, counsel for Sequent Computer Systems Limited ("Limited"),
in form and substance satisfactory to you, to the effect that (i) Limited has
been duly incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the corporate power
and authority to own its property and to conduct its business as described in
the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole,
and (ii) all of the issued shares of capital stock of Limited have been duly and
validly authorized and issued, are fully paid and non-assessable and are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
(g) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters, dated
the Closing Date, covering the matters referred to in subparagraphs (v), (vi),
(viii) (but only as to the statements in the Prospectus under "Underwriters")
and (xii) of paragraph (d) above.
With respect to subparagraph (xii) of paragraph (d) above, Stoel Rives
LLP and Wilson Sonsini Goodrich & Rosati may state that their opinion and belief
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and review
and discussion of the contents thereof, but are without independent check or
verification, except as specified.
The opinions of Stoel Rives described in paragraphs (d) and (e) above
shall be rendered to the Underwriters at the request of the Company and shall so
state therein.
(h) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to the Underwriters, from Price
Waterhouse LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
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information contained in the Registration Statement and the Prospectus; provided
that the letter delivered on the Closing Date shall use a "cut-off date" not
earlier than the date hereof.
(i) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and directors
of the Company relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.
(j) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the agreements of
the Underwriters herein contained, the Company covenants with each Underwriter
as follows:
(a) To furnish to you, without charge, [______] signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 7:00 A.M., Pacific time, on the business day next succeeding the date of this
Agreement and during the period mentioned in paragraph (c) below, as many copies
of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus required
to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the Prospectus
is required by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
Purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to comply
with applicable law, forthwith to prepare, file with the Commission and furnish,
at its own expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been sold by
you on behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a Purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
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<PAGE>
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-month
period ending __________, 1998 that satisfies the provisions of Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder.
8. Expenses. Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, the Company shall pay or cause
to be paid all expenses incident to the performance of the obligations of the
Company and the Selling Stockholders under this Agreement, including: (i) the
fees, disbursements and expenses of the Company's counsel and the Company's
accountants in connection with the registration and delivery of the Shares under
the Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 6(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and disbursements of counsel to the
Underwriters incurred in connection with the review and qualification of the
offering of the Shares by the National Association of Securities Dealers, Inc.,
(v) all fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to listing the Shares on the Nasdaq National Market and
other national securities exchanges and foreign stock exchanges, (vi) the cost
of printing certificates representing the Shares, (vii) the costs and charges of
any transfer agent, registrar or depositary, (viii) the costs and expenses of
the Company relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the
road show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with the road
show, and (ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section; provided that each Selling Stockholder agrees to pay or cause
to be paid its pro rata share (based on the percentage that the number of Shares
sold by such Selling Stockholder bears to the total number of Shares sold) of
all underwriting discounts and commissions. In addition, each Selling
Shareholder, severally and not jointly, agrees to pay or cause to be paid all
taxes, if any, on the transfer and sale of the Shares being sold by such Selling
Stockholder and the fees and expenses of counsel retained by such Selling
Stockholder. It is
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understood, however, that except as provided in this Section, Section 9 entitled
"Indemnity and Contribution", and the last paragraph of Section 9 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock transfer taxes payable on resale of any of
the Shares by them and any advertising expenses connected with any offers they
may make.
9. Indemnity and Contribution.
(a) Each of the Company, jointly and severally, and each of the
Selling Stockholders, severally and not jointly, in proportion to the number of
Shares to be sold by such Selling Stockholder in relation to the aggregate
number of Shares to be sold by all of the Sellers hereunder, agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein; provided, that in no
event shall any Selling Stockholder be liable for any losses, claims, damages or
liabilities, except insofar as the same are caused by any untrue statement or
omission or alleged untrue statement or omission based upon information relating
to such Selling Stockholder furnished in writing by such Selling Stockholder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Stockholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a) or (b) of this Section 9, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the
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indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to paragraph (a) of this Section 9, and by the
Company, in the case of parties indemnified pursuant to paragraph (b) of this
Section 9. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in paragraph (a) or
(b) of this Section 9 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Indemnifying Party or Parties on the one hand and the
Indemnified Party or Parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Indemnifying Party or Parties on the one hand and of the Indemnified Party
or Parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Sellers
on the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same
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respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(e) The Sellers and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in paragraph (d) of this Section 9. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, (ii) no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission and (ii) no Selling Stockholder shall
be required to contribute any amount in excess of the amount by which the total
gross proceeds received by such Selling Stockholder from the sale of the Shares
exceeds the amount of damages that such Selling Stockholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, the Selling Stockholders or any person
controlling the Selling Stockholders, or the Company, its officers or directors
or any person controlling the Company and (iii) acceptance of and payment for
any of the Shares.
10. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing
-18-
<PAGE>
Date (i) trading generally shall have been suspended or materially limited on or
by, as the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your judgment, is material and
adverse and (b) in the case of any of the events specified in clauses (a)(i)
through (iv), such event, singly or together with any other such event, makes
it, in your judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 11 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholders. In any such case either you or the Sellers
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
-19-
<PAGE>
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
-20-
<PAGE>
Very truly yours,
SEQUENT COMPUTER SYSTEMS, INC.
By
-------------------------------------
Name:
Title:
The Selling Stockholders named in
Schedule III hereto, acting severally
By
-------------------------------------
Name:
Attorney-in-Fact
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters named
in Schedule I hereto.
By Morgan Stanley & Co. Incorporated
By
---------------------------------
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. International Limited
By
---------------------------------
Name:
Title:
-21-
<PAGE>
Schedule I
U.S. Underwriters
-----------------
Number of Firm Shares
Underwriter To Be Purchased
- ------------------------------------------------ ----------------------------
Morgan Stanley & Co. Incorporated
Cowen & Company
SoundView Financial Group, Inc.
----------
Total U.S. Firm Shares
==========
<PAGE>
Schedule II
International Underwriters
--------------------------
Number of Firm Shares
Underwriter To Be Purchased
- ------------------------------------------------ ----------------------------
Morgan Stanley & Co. International Limited
Cowen & Company
SoundView Financial Group, Inc.
----------
Total International Firm Shares
==========
<PAGE>
Schedule III
Selling Stockholders
--------------------
Number of Firm Shares
Selling Stockholder To Be Sold
- ------------------------------------------------ ----------------------------
State Farm Mutual Automobile Insurance Company 981,700
Froley, Revy Investments Co., Inc. Account:
State of Oregon Equity Fund 63,241
Robert Mathis 5,620
---------
Total Shares 1,505,561
=========
Exhibit 4B
BYLAWS
OF
SEQUENT COMPUTER SYSTEMS, INC.
<PAGE>
Originally adopted on: October 14, 1988
Amendments are listed on page i
<PAGE>
AMENDMENTS
Date of
Section Effect of Amendment Amendment
- ------- --------------------- ---------
4.1 Broadens requirements of office of Vice President 11/14/88
3.16.1 Changes in committee authorization 3/20/90
2.1 Provides flexibility in setting annual meeting 5/15/90
2.4.2 Deletes provisions regarding shareholder notice 5/15/90
by telegraph, facsimile and private courier
2.6.1 Changes the maximum period from the record date 5/15/90
to the meeting date or payment date from 60 days
to 70 days as permitted by the statute
2.11 Clarifies that each share of Common Stock has 5/15/90
one vote
3.2 Permits annual board meeting to precede annual 5/15/90
meeting of shareholders
3.8 Clarifies determination of a quorum of directors 5/15/90
3.10 Clarifies procedures for dissent and abstention 5/15/90
by directors
3.16 Revises committee procedures to conform to statute 5/15/90
4.1 Corrects typographical error 5/15/90
4.2 Permits annual board meeting to precede annual 5/15/90
meeting of shareholders
4.7 Authorizes President to vote stock held by 5/15/90
the Corporation
6.1 Conforms to statute regarding issuance of stock 5/15/90
i
<PAGE>
Date of
Section Effect of Amendment Amendment
- ------- --------------------- ---------
10.1.2 Amends definition of "expenses" for purposes 1/18/94
of the indemnification
ii
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. OFFICES ...........................................................1
SECTION 2. SHAREHOLDERS.......................................................1
2.1 Annual Meeting....................................................1
2.2 Special Meetings..................................................1
2.3 Place of Meeting..................................................1
2.4 Notice of Meeting.................................................1
2.5 Waiver of Notice..................................................2
2.6 Fixing of Record Date for
Determining Shareholders..........................................2
2.7 Shareholders' List................................................3
2.8 Quorum............................................................3
2.9 Manner of Acting..................................................3
2.10 Proxies...........................................................4
2.11 Voting of Shares..................................................4
2.12 Voting for Directors..............................................4
2.13 Action by Shareholders Without a Meeting..........................4
2.14 Notification of Nominations.......................................4
2.15 Proper Business for Shareholders' Meeting.........................5
SECTION 3. BOARD OF DIRECTORS.................................................5
3.1 General Powers....................................................5
3.2 Number, Tenure and Qualifications.................................6
3.3 Annual and Regular Meetings.......................................6
3.4 Special Meetings..................................................6
3.5 Meetings by Telephone.............................................6
3.6 Notice of Special Meetings........................................6
3.6.1 Personal Delivery..........................................6
3.6.2 Delivery by Mail...........................................6
3.6.3 Delivery by Telegraph......................................6
3.6.4 Oral Notice................................................6
3.6.5 Notice by Facsimile Transmission...........................7
3.6.6 Notice by Private Courier..................................7
3.6.7 Exigency...................................................7
3.7 Waiver of Notice..................................................7
3.7.1 Written Waiver.............................................7
3.7.2 Waiver by Attendance.......................................7
iii
<PAGE>
Page
3.8 Quorum............................................................7
3.9 Manner of Acting..................................................7
3.10 Presumption of Assent.............................................7
3.11 Action by Board or Committees
without a Meeting.................................................8
3.12 Resignation.......................................................8
3.13 Removal...........................................................8
3.14 Vacancies.........................................................8
3.15 Minutes...........................................................8
3.16 Executive and Other Committees....................................9
3.16.1 Standing or Temporary Committees..........................9
3.16.2 Minutes of Meetings.......................................9
3.16.3 Resignation...............................................9
3.16.4 Removal...................................................9
3.17 Compensation......................................................9
SECTION 4. OFFICERS ..........................................................9
4.1 Number ...........................................................9
4.2 Election and Term of Office......................................10
4.3 Resignation......................................................10
4.4 Removal..........................................................10
4.5 Vacancies........................................................10
4.6 Chairman of the Board............................................10
4.7 President........................................................10
4.8 Vice President...................................................11
4.9 Secretary........................................................11
4.10 Treasurer........................................................11
4.11 Salaries ........................................................11
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS.............................12
5.1 Contracts........................................................12
5.2 Loans... ........................................................12
5.3 Checks, Drafts, Etc..............................................12
5.4 Deposits.........................................................12
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER........................12
6.1 Issuance of Shares...............................................12
6.2 Certificates for Shares..........................................12
6.3 Stock Records....................................................12
iv
<PAGE>
Page
6.4 Transfer of Shares...............................................13
6.5 Lost or Destroyed Certificates...................................13
6.6 Officer Ceasing to Act...........................................13
SECTION 7. BOOKS AND RECORDS.................................................13
SECTION 8. FISCAL YEAR.......................................................13
SECTION 9. SEAL .............................................................13
SECTION 10. INDEMNIFICATION..................................................13
10.1 Definition.......................................................13
10.2 Right to Indemnification.........................................14
10.3 No Indemnification...............................................14
10.4 Limitation on Indemnification....................................15
10.5 Determination and Authorization
of Indemnification...............................................15
10.5.1 Permissible..............................................15
10.5.2 Authorization............................................15
10.6 Advance for Expenses.............................................15
10.7 Indemnification of Officers, Employees
and Agents.......................................................16
10.8 Insurance........................................................16
10.9 Additional Indemnification; Nonexclusivity
of Rights........................................................16
SECTION 11. AMENDMENTS.......................................................17
SECTION 12. CONTROL SHARE ACQUISITION STATUTE................................17
v
<PAGE>
BYLAWS
OF
SEQUENT COMPUTER SYSTEMS, INC.
SECTION 1. OFFICES
The principal office of the Corporation shall be located at the principal
place of business or such other place as the Board of Directors (the "Board")
may designate. The Corporation may have such other offices, either within or
without the State of Oregon, as the Board may designate or as the business of
the Corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting. The annual meeting of the shareholders shall be held
the third Tuesday of May in each year at 3:00 p.m., unless a different date or
time is fixed by the Board and stated in the notice of the meeting, for the
purpose of electing Directors and transacting such other business as may
properly come before the meeting. If the day fixed for the annual meeting is a
legal holiday at the place of the meeting, the meeting shall be held the next
succeeding business day.
2.2 Special Meetings. A special meeting of the shareholders of the
Corporation may be called for any purpose, subject to Section 2.15 hereof, by
the Chairman of the Board, the President, a majority of the Continuing
Directors, as defined in Article XI of the Articles of Incorporation, or the
holders of not less than ten percent of the outstanding shares of the
Corporation entitled to vote at such meeting.
2.3 Place of Meeting. All meetings shall be held at the principal office of
the Corporation or at such other place as designated by the Continuing Directors
or by any persons entitled to call a meeting hereunder.
2.4 Notice of Meeting.
2.4.1 The Chairman of the Board, the President, the Secretary, the
Continuing Directors, or shareholders shall cause to be delivered to each
shareholder entitled to notice of or to vote at an annual or special meeting of
shareholders, either personally or by mail, not less than thirty nor more than
sixty days before the meeting, written notice stating the date, time and place
of the meeting and, in the case of a special meeting, the purpose(s) for which
the meeting is called. If the Corporation has an Interested Shareholder, as
defined in Article XI of the Articles of Incorporation, notice of a special
meeting of shareholders shall be given to each shareholder of record entitled to
vote at such meeting not less than fifty-five nor more than sixty (or the
maximum number permitted by applicable law) days before the meeting date, unless
the calling of such meeting is ratified by the affirmative vote of a majority of
the Continuing Directors, as defined in Article XI of the Articles of
Incorporation, in which case notice of such special meeting shall be given to
each
1
<PAGE>
shareholder of record entitled to vote at such meeting not less than thirty nor
more than sixty (or the maximum number permitted by applicable law) days before
the meeting date. At any time, upon written request of the holders of not less
than ten percent of all of the outstanding shares of the Corporation entitled to
vote at the meeting, it shall be the duty of the Secretary to call a special
meeting of shareholders to be held at the principal office of the Corporation at
such time as the Secretary may fix, not less than thirty nor more than sixty
days after receipt of said request, and if the Secretary shall neglect or refuse
to issue such call, the person making the request may do so and may fix the date
for such meeting.
2.4.2 If such notice is mailed, it shall be deemed delivered when
deposited in the official government mail, properly addressed to the shareholder
at his or her address as it appears on the stock transfer books of the
Corporation, with postage prepaid. If the notice is telegraphed, it shall be
deemed delivered when the content of the telegram is delivered to the telegraph
company.
2.5 Waiver of Notice.
2.5.1 Whenever any notice is required to be given to any shareholder
under the provisions of these bylaws, the Articles of Incorporation or the
Oregon Business Corporation Act, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
2.5.2 The attendance of a shareholder at a meeting shall constitute a
waiver of notice of such meeting, unless the shareholder, at the beginning of
the meeting or prior to consideration of such matter, objects to holding the
meeting, transacting business at the meeting, or considering the matter when
presented at the meeting.
2.6 Fixing of Record Date for Determining Shareholders.
2.6.1 For the purpose of determining shareholders entitled to notice
of, or to vote at, any meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other purpose, the Board may fix in
advance a date as the record date for any such determination. Such record date
shall be not more than seventy days, and in case of a meeting of shareholders,
not less than thirty days, prior to the date on which the particular action
requiring such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
date on which the notice of meeting is mailed or on which the resolution of the
Board declaring such dividend is adopted, as the case may be, shall be the
record date for such determination. Such determination shall apply to any
adjournment of the meeting, provided such adjournment is not set for a date more
than 120 days after the date fixed for the original meeting.
2
<PAGE>
2.6.2 The record date for the determination of shareholders entitled
to demand a special shareholder meeting shall be the date the first shareholder
signs the demand.
2.7 Shareholders' List.
2.7.1 Beginning two business days after notice of a meeting of
shareholders is given, a complete alphabetical list of the shareholders entitled
to notice of such meeting shall be made, arranged by voting group, and within
each voting group by class or series, with the address of and number of shares
held by each shareholder. This record shall be kept on file at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. On written demand, this record shall be subject
to inspection by any shareholder at any time during normal business hours. Such
record shall also be kept open at such meeting for inspection by any
shareholder.
2.7.2 A shareholder may, on written demand, copy the shareholders'
list at such shareholder's expense during regular business hours, provided that:
a. Such shareholder's demand is made in good faith and for a
proper purpose;
b. Such shareholder has described with reasonable particularity
his/her/its purpose in the written demand; and
c. The shareholders' list is directly connected with such
shareholder's purpose.
2.8 Quorum. A majority of the votes entitled to be cast on a matter at a
meeting by a voting group, represented in person or by proxy, shall constitute a
quorum of that voting group for action on that matter at a meeting of the
shareholders. If a quorum is not present for a matter to be acted upon, a
majority of the shares represented at the meeting may adjourn the meeting from
time to time without further notice. If the necessary quorum is present or
represented at a reconvened meeting following such an adjournment, any business
may be transacted that might have been transacted at the meeting as originally
called. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
2.9 Manner of Acting.
2.9.1 If a quorum exists, action on a matter (other than the election
of Directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
affirmative vote of a greater number is required by these Bylaws, the Articles
of Incorporation or the Oregon Business Corporation Act.
3
<PAGE>
2.9.2 If a matter is to be voted on by a single group, action on that
matter is taken when voted upon by that voting group. If a matter is to be voted
on by two or more voting groups, action on that matter is taken only when voted
upon by each of those voting groups counted separately. Action may be taken by
one voting group on a matter even though no action is taken by another voting
group entitled to vote on such matter.
2.10 Proxies. A shareholder may vote by proxy executed in writing by the
shareholder or by his or her attorney-in-fact. Such proxy shall be effective
when received by the Secretary or other officer or agent of the Corporation
authorized to tabulate votes at the meeting. A proxy shall become invalid eleven
months after the date of its execution, unless otherwise expressly provided in
the proxy. A proxy for a specified meeting shall entitle the holder thereof to
vote at any adjournment of such meeting but shall not be valid after the final
adjournment thereof.
2.11 Voting of Shares. Each outstanding share of Common Stock entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders.
2.12 Voting for Directors. Each shareholder may vote, in person or by
proxy, the number of shares owned by such shareholder that are entitled to vote
at an election of Directors, for as many persons as there are Directors to be
elected and for whose election such shares have a right to vote. Unless
otherwise provided in the Articles of Incorporation, Directors are elected by a
plurality of the votes cast by shares entitled to vote in the election at a
meeting at which a quorum is present.
2.13 Action by Shareholders Without a Meeting. Subject to Article XII of
the Articles of Incorporation, any action which could be taken at a meeting of
the shareholders may be taken without a meeting if a written consent setting
forth the action so taken is signed by all shareholders entitled to vote with
respect to the subject matter thereof. The action shall be effective on the date
on which the last signature is placed on the consent, or at such earlier or
later time as is set forth therein. Such written consent, which shall have the
same force and effect as a unanimous vote of the shareholders, shall be inserted
in the minute book as if it were the minutes of a meeting of the shareholders.
2.14 Notification of Nominations. Nominations for the election of Directors
may be made by or at the direction of the Board of Directors. A shareholder may
also nominate a person or persons for election as Directors, but only if written
notice of such shareholder's intent to make such nominations is received by the
Secretary of the Corporation, not later than (i) with respect to an election to
be held at an annual meeting of shareholders, ninety days in advance of the
third Tuesday in May, and (ii) with respect to an election to be held at any
other meeting of shareholders, the close of business on the tenth day following
the date of the first public disclosure, which may include any public filing by
the Corporation with the Securities and Exchange Commission, of the Originally
Scheduled Date of such meeting. Each such notice shall set forth (a) the name
and address of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (b) a
4
<PAGE>
representation that the shareholder is a holder of record entitled to vote at
such meeting; (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming them)
pursuant to which the nomination is to be made; (d) such other information
regarding each nominee as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated by the Board of Directors; and (e)
the consent of each nominee to serve as a Director if elected. The chairman of
any meeting of shareholders to elect Directors and the Board of Directors shall
refuse to recognize the nomination of any person not made in compliance with the
foregoing procedure. For purposes of these Bylaws, the "Originally Scheduled
Date" of any meeting of shareholders shall be the date such meeting is scheduled
to occur in the notice first given to shareholders regardless of whether such
meeting is continued or adjourned or whether any subsequent notice is given for
such meeting or the record date of such meeting is changed.
2.15 Proper Business for Shareholders' Meeting. At any annual or special
meeting of the shareholders of the Corporation, only business properly brought
before the meeting may be transacted. To be properly brought before an annual
meeting, business (i) must be specified in the notice of the meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before a meeting by a
shareholder, written notice thereof must have been received by the Secretary of
the Corporation, not later than (i) with respect to an annual meeting, 120
calendar days in advance of the date of the Corporation's proxy statement
released to shareholders in connection with the previous years' annual meeting
of shareholders, and (ii) with respect to any other meeting, the close of
business on the tenth day following the date of the first public disclosure,
which may include any public filing by the Corporation with the Securities and
Exchange Commission, of the Originally Scheduled Date of such meeting. Any such
notice shall set forth as to each matter the shareholder proposes to bring
before the meeting (i) a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
the language of the proposal, (ii) the name and address of the shareholder
proposing such business, (iii) a representation that the shareholder is a holder
of record of stock of the Corporation entitled to vote at such meeting, and (iv)
any material interest of the shareholder in such business. No business shall be
conducted at any meeting of shareholders except in accordance with this
paragraph, and the chairman of any meeting of shareholders and the Board of
Directors shall refuse to permit any business to be brought before any meeting
without compliance with the foregoing procedures.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation shall be
managed by the Board.
5
<PAGE>
3.2 Number, Tenure and Qualifications. The Board shall be composed of not
less than five nor more than nine Directors, the specific number to be set by
resolution of the Board. Unless a Director dies, resigns or is removed, he or
she shall hold office until the next annual shareholder's meeting or until his
or her successor is elected, whichever is later. Directors need not be
shareholders of the Corporation or residents of the State of Oregon.
3.3 Annual and Regular Meetings. An annual Board meeting shall be held
without notice immediately after and at the same place as the annual meeting of
shareholders, unless notice is given to the Directors that the annual Board
meeting will be held at some other time or place. By resolution, the Board may
specify the time and place either within or without the State of Oregon for
holding regular meetings without other notice than such resolution.
3.4 Special Meetings. Special meetings of the Board may be called by or at
the request of the Chairman of the Board, the President or any three Directors.
The person or persons authorized to call special meetings may fix any place
either within or without the State of Oregon as the place for holding any
special Board or committee meeting called by them.
3.5 Meetings by Telephone. Members of the Board or any committee designated
by the Board may participate in a meeting of such Board or committee by use of
means of conference telephone or similar communications equipment by which all
persons participating may simultaneously hear each other during the meeting.
Participation by such means shall be deemed presence in person at the meeting.
3.6 Notice of Special Meetings. Notice of a special Board meeting stating
the time and place of the meeting shall be given to a Director in writing
delivered to the Director at his or her address shown on the records of the
Corporation. Neither the business to be transacted at, nor the purpose of, any
special meeting need be specified in the notice of such meeting.
3.6.1 Personal Delivery. If delivery is by personal service, the
notice shall be effective if delivered at such address at least two days before
the meeting.
3.6.2 Delivery by Mail. If notice is delivered by mail, the notice
shall be deemed effective if deposited in the official government mail at least
five days before the meeting properly addressed to a Director at his or her
address shown on the records of the Corporation with postage prepaid.
3.6.3 Delivery by Telegraph. If notice is delivered by telegraph, the
notice shall be deemed effective if the content thereof is delivered to the
telegraph company at least two days before the meeting.
3.6.4 Oral Notice. If notice is delivered orally, by telephone or in
person, the notice shall be effective if personally given to a Director at least
one day before the meeting.
6
<PAGE>
3.6.5 Notice by Facsimile Transmission. If notice is delivered by
facsimile transmission, the notice shall be deemed effective if the content
thereof is transmitted to, and acknowledged by, the office of a Director, at the
address shown on the records of the Corporation, at least one day before the
meeting.
3.6.6 Notice by Private Courier. If notice is delivered by private
courier, the notice shall be deemed effective if delivered to the courier by
such time that the courier guarantees delivery at least one day before the
meeting.
3.6.7 Exigency. In case of exigency, the person or persons calling the
meeting may prescribe a shorter notice, to be given personally or by telephoning
each Director.
3.7 Waiver of Notice.
3.7.1 Written Waiver. Whenever any notice is required to be given to
any Director under the provisions of these Bylaws, the Articles of Incorporation
or the Oregon Business Corporation Act, a waiver thereof in writing, executed at
any time, specifying the meeting for which notice is waived, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, and filed with the minutes or corporate records, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board need be
specified in the waiver of notice of such meeting.
3.7.2 Waiver by Attendance. The attendance of a Director at a Board
meeting shall constitute a waiver of notice of such meeting, unless the
Director, at the beginning of the meeting, or promptly upon such Director's
arrival, objects to holding the meeting or transacting any business thereat and
does not thereafter vote for or assent to action taken at the meeting.
3.8 Quorum. A majority of the number of Directors fixed in accordance with
Section 3.2 shall constitute a quorum for the transaction of business at any
Board meeting, but, if less than a majority are present at a meeting, a majority
of the directors present may adjourn the meeting from time to time without
further notice.
3.9 Manner of Acting. The act of the majority of the Directors present at a
Board meeting at which there is a quorum shall be the act of the Board, unless
the vote of a greater number is required by these Bylaws, the Articles of
Incorporation or the Oregon Business Corporation Act.
3.10 Presumption of Assent. A Director of the Corporation present at a
Board meeting at which action on any corporate matter is taken shall be deemed
to have assented to the action taken unless such (a) such Director objects at
the beginning of the meeting, or promptly upon such Director's arrival, to
holding the meeting or transacting business at the
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meeting, (b) such Director's dissent is entered in the minutes of the meeting,
(c) such Director delivers a written notice of dissent or abstention to such
action with the presiding officer of the meeting before the adjournment thereof,
or (d) such Director forwards such notice by registered mail to the Secretary of
the Corporation immediately after the adjournment of the meeting. A Director who
voted in favor of such action may not thereafter dissent or abstain.
3.11 Action by Board or Committees without a Meeting. Any action which
could be taken at a meeting of the Board or of any committee appointed by the
Board may be taken without a meeting if a written consent setting forth the
action so taken is signed by each Director or by each committee member. Such
written consent, which shall have the same effect as a unanimous vote of the
Directors or such committee, shall be inserted in the minute book as if it were
the minutes of a Board or committee meeting.
3.12 Resignation. Any Director may resign at any time by delivering written
notice to the Chairman of the Board, the Board, or to the registered office of
the Corporation. Such resignation shall take effect at the time specified in the
notice, or if no time is specified, upon delivery. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
3.13 Removal. One or more members of the Board (including the entire Board)
may be removed at a meeting of shareholders, provided that the notice of such
meeting states that the purpose, or one of the purposes, of the meeting is such
removal. A member of the Board may be removed with or without cause, unless the
Articles of Incorporation permit removal for cause only, by a vote of the
holders of a majority of the shares then entitled to vote on the election of the
Director(s). A Director may be removed only if the number of votes cast to
remove the Director exceeds the number of votes cast to not remove the Director.
If a Director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove such
Director.
3.14 Vacancies. In case of any increase in the number of Directors, or of
any vacancy created by death or resignation, the additional Director or
Directors may be elected or, as the case may be, the vacancy or vacancies may be
filled, either (a) by the Board of Directors at any meeting, (i) if the
corporation has an Interested Shareholder, as defined in Article XI of the
Articles of Incorporation, by the affirmative vote of a majority of the
Continuing Directors, as defined in Article XI of the Articles of Incorporation,
or (ii) if the Corporation does not have an Interested Shareholder, by the
affirmative vote of a majority of the remaining Directors, though less than a
quorum or (b) by the shareholders entitled to vote, either at an annual meeting
or at a special meeting thereof called for the purpose, by the affirmative vote
of a majority of the outstanding shares entitled to vote at such meeting.
3.15 Minutes. The Board shall keep minutes of its meetings and shall cause
them to be recorded in books kept for that purpose.
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3.16 Executive and Other Committees.
3.16.1 Standing or Temporary Committees. The Board may, by resolution
passed by a majority of the Directors in office, appoint standing or temporary
committees of the Board, each such Board committee to consist of two or more
Directors of the Corporation, and invest such committees with such powers as it
may see fit, subject to such conditions and limitations as may be prescribed by
the Board and by applicable law. The Board, by action of a majority of all
Directors in office, shall have the power at any time to change the number of
committee members, fill committee vacancies, change any committee members and
terminate the existence of a committee. In addition to Board committees
contemplated by this Section 3.16.1, the Board of Directors may establish other
committees consisting of persons who are not directors for any purpose permitted
by law.
3.16.2 Minutes of Meetings. All committees so appointed shall keep
regular minutes of their meetings and shall cause them to be recorded in books
kept for that purpose.
3.16.3 Resignation. Any member of any committee may resign at any time
by delivering written notice thereof to the Chairman of the Board, the
President, the Secretary, the Board or the Chairman of such Committee. Any such
resignation shall take effect at the time specified therein, or if the time is
not specified, upon delivery thereof and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
3.16.4 Removal. The Board may remove from office any member of any
committee elected or appointed by it, but only by the affirmative vote of not
less than a majority of the Directors in office.
3.17 Compensation. By Board resolution, Directors and committee members may
be paid their expenses, if any, of attendance at each Board or committee
meeting, or a fixed sum for attendance at each Board or committee meeting, or a
stated salary as Director or a committee member, or a combination of the
foregoing. No such payment shall preclude any Director or committee member from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 4. OFFICERS
4.1 Number. The Officers of the Corporation shall be a President, a
Secretary and a Treasurer, each of whom shall be elected by the Board. One or
more Vice Presidents and such other Officers and assistant Officers, including a
Chairman of the Board, may be elected or appointed by the Board, such Officers
and assistant Officers to hold office for such period, have such authority and
perform such duties as are provided in these Bylaws or as may be provided by
resolution of the Board; provided that the Chief Executive Officer or President
of the Company shall be authorized to appoint one or more employees of the
Company who may have the title of vice President but who shall not be officers
of the
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Company and shall not be deemed "Vice Presidents" for purposes of this Section
4. Any Vice President of the Company who is elected or appointed by resolution
of the Board shall be conclusively presumed to be an "officer" and "Vice
President" for the purposes of this Section 4 and applicable corporate law. Any
Officer may be assigned by the Board any additional title that the Board deems
appropriate. The Board may delegate to any Officer or agent the power to appoint
any such subordinate Officers or agents and to prescribe their respective terms
of office, authority and duties. Any two or more offices may be held by the same
person.
4.2 Election and Term of Office. The Officers of the Corporation shall be
elected annually by the Board at the annual Board meeting. If the election of
Officers is not held at such meeting, such election shall be held as soon
thereafter as a Board meeting conveniently may be held. Unless an Officer dies,
resigns, or is removed from office, he or she shall hold office until the next
annual meeting of the Board or until his or her successor is elected.
4.3 Resignation. Any Officer may resign at any time by delivering written
notice to the Chairman of the Board, the President, a Vice President, the
Secretary or the Board. Any such resignation shall take effect at the time
specified in the notice, or if no time is specified, upon delivery. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.4 Removal. Any Officer or agent elected or appointed by the Board may be
removed by the Board whenever, in the Board's judgment, the best interests of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
4.5 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification, creation of a new office or any other cause may be
filled by the Board for the unexpired portion of the term, or for a new term
established by the Board.
4.6 Chairman of the Board. If elected, the Chairman of the Board shall
perform such duties as shall be assigned to him or her by the Board from time to
time and shall preside over meetings of the Board and shareholders unless
another Officer is appointed or designated by the Board as Chairman of such
meeting.
4.7 President. The President shall preside over meetings of the Board and
shareholders in the absence of a Chairman of the Board and, subject to the
Board's control, shall supervise and control all of the assets, business and
affairs of the Corporation. The President shall have authority to sign
certificates for shares of the Corporation, deeds, mortgages, bonds, contracts,
or other instruments, except when the signing and execution thereof have been
expressly delegated by the Board or by these Bylaws to some other Officer or
agent of the Corporation, or are required by law to be otherwise signed or
executed by some other Officer or in some other manner. Unless otherwise
determined by the Board, the President shall have authority to vote any shares
of stock owned by the Corporation and to
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delegate this authority to any other Officer. In general, the President shall
perform all duties incident to the office of President and such other duties as
are prescribed by the Board from time to time.
4.8 Vice President. In the event of the death of the President or his or
her inability to act, the Vice President (or if there is more than one Vice
President, the Vice President who was designated by the Board as the successor
to the President, or if no Vice President is so designated, the Vice President
first elected to such office) shall perform the duties of the President, except
as may be limited by resolution of the Board, with all the powers of and subject
to all the restrictions upon the President. Any Vice President may sign
certificates for shares of the Corporation. Vice Presidents shall have, to the
extent authorized by the President or the Board, the same powers as the
President to sign deeds, mortgages, bonds, contracts or other instruments. Vice
Presidents shall perform such other duties as from time to time may be assigned
to them by the President or by the Board.
4.9 Secretary. The Secretary shall: (a) keep the minutes of meetings of the
shareholders and the Board in one or more books provided for that purpose; (b)
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be responsible for custody of the corporate
records and seal of the corporation; (d) keep registers of the post office
address of each shareholder and Director; (e) sign certificates for shares of
the Corporation; (f) have general charge of the stock transfer books of the
Corporation; (g) sign, with the President or other Officer authorized by the
President or the Board, deeds, mortgages, bonds, contracts or other instruments;
and (h) in general perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him or her by the
President or by the Board. In the absence of the Secretary, an Assistant
Secretary may perform the duties of the Secretary.
4.10 Treasurer. The Treasurer shall have charge and custody of and be
responsible for all funds and securities of the Corporation; receive and give
receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws; sign certificates for shares of the Corporation; and in general
perform all of the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him or her by the President or by
the Board. If required by the Board, the Treasurer shall give a bond for the
faithful discharge of his or her duties in such amount and with such surety or
sureties as the Board shall determine. In the absence of the Treasurer, an
Assistant Treasurer may perform the duties of the Treasurer.
4.11 Salaries. The salaries of the Officers shall be fixed from time to
time by the Board or by any person or persons to whom the Board has delegated
such authority. No Officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the Corporation.
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SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts. The Board may authorize any Officer or Officers, or agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation. Such authority may be general or
confined to specific instances.
5.2 Loans. No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
5.3 Checks, Drafts, Etc. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such Officer or Officers, or agent or agents, of
the Corporation and in such manner as is from time to time determined by
resolution of the Board.
5.4 Deposits. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares. Before the Corporation issues shares, the Board
shall determine that the consideration received or to be received for such
shares is adequate. The authorization by the Board, a Board committee or
specified officers of the issuance of shares for stated consideration shall
evidence a determination by the Board that such consideration is adequate. Such
determination by the Board shall be conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares are
validly issued, fully paid and nonassessable.
6.2 Certificates for Shares. Certificates representing shares of the
Corporation shall be signed by the Chairman of the Board, or the President, or
the Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary. Any or all of the signatures on a
certificate may be a facsimile. All certificates shall include on their face
written notice of any restrictions which may be imposed on the transferability
of such shares and shall be consecutively numbered or otherwise identified.
6.3 Stock Records. The stock transfer books shall be kept at the registered
office or principal place of business of the Corporation or at the office of the
Corporation's transfer agent or registrar. The name and address of the person to
whom certificates for shares are issued, together with the class and number of
shares represented by each such certificate and the date of issue thereof, shall
be entered on the stock transfer books of the Corporation. The person in whose
name shares stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
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6.4 Transfer of Shares. Transfer of shares of the Corporation shall be made
only on the stock transfer books of the Corporation pursuant to authorization or
document of transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
6.5 Lost or Destroyed Certificates. In the case of a lost, destroyed or
mutilated certificate, a new certificate may be issued therefor upon such terms
and indemnity to the Corporation as the Board may prescribe.
6.6 Officer Ceasing to Act. In case any officer who has signed or whose
facsimile signature has been placed upon a stock certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if the signer were such officer at the date
of its issuance.
SECTION 7. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its shareholders
and Board and such other records as may be necessary or advisable.
SECTION 8. FISCAL YEAR
The fiscal year of the Corporation shall be the fiscal year selected for
purposes of federal income taxes.
SECTION 9. SEAL
The seal of the Corporation shall consist of the name of the Corporation,
the year of its incorporation and the state of its incorporation.
SECTION 10. INDEMNIFICATION
10.1 Definition. As used in this Section 10:
10.1.1 "Director" means an individual who is or was a Director of the
Corporation or an individual who, while a Director of the Corporation, is or was
serving at the Corporation's request 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. A Director is
considered to be serving an employee benefit plan at the Corporation's request
if the Director's duties to the Corporation also impose duties on or
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otherwise involve services by the Director to the plan or to participants in or
beneficiaries of the plan. "Director" includes, unless the context requires
otherwise, the estate or personal representative of a Director.
10.1.2 "Expenses" shall include, without limitation, expense of
investigation, judicial or administrative proceedings or appeals, expense of
attorneys' fees and disbursements and any expense of establishing a right to
indemnification under these Bylaws.
10.1.3 "Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan or reasonable expenses incurred with respect to a proceeding.
10.1.4 "Officer" means an individual who is or was an Officer of the
Corporation or an individual who, while an Officer of the Corporation, is or was
serving at the Corporation's request 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. An Officer is
considered to be serving an employee benefit plan at the Corporation's request
if the Officer's duties to the Corporation also impose duties on or include
services by the Officer to the employee benefit plan or to participants in or
beneficiaries of the plan. "Officer" includes, unless the context requires
otherwise, the estate or personal representative of an Officer.
10.1.5 "Party" includes an individual who was, is or is threatened to
be made a named defendant or respondent in a proceeding.
10.1.6 "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
10.2 Right to Indemnification. Except as hereinafter provided, the
Corporation shall indemnify an individual made a party to a proceeding because
the individual is or was a Director against liability incurred in the proceeding
if, as determined below:
10.2.1 The conduct of the individual was in good faith;
10.2.2 The individual reasonably believed that the individual's
conduct was in the best interest of the Corporation, or at least not opposed to
its best interests; and
10.2.3 In the case of any criminal proceeding, the individual had no
reasonable cause to believe the individual's conduct was unlawful.
10.3 No Indemnification. The Corporation shall not indemnify a Director
under Section 10.2 in connection with a proceeding by or in the right of the
Corporation in which the Director is adjudged liable to the Corporation, or in
connection with any other proceeding
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charging improper personal benefit to the Director in which the Director was
adjudged liable on the basis that personal benefit was improperly received by
the Director. However, the Corporation may so indemnify a Director pursuant to
Section 10.9 hereof.
10.4 Limitation on Indemnification. Indemnification required under Section
10.2 in connection with a proceeding by or in the right of the Corporation is
limited to reasonable expenses actually incurred in connection with the
proceeding.
10.5 Determination and Authorization of Indemnification. The Corporation
shall not indemnify a Director under Section 10.2 unless authorized in the
specific case after a determination has been made that the indemnification of
the Director is permissible in the circumstances because the Director has met
the standard of conduct set forth in Section 10.2.
10.5.1 Permissible. A determination that indemnification of a Director
is permissible shall be made:
(a) By a majority vote of a quorum of the Board of Directors,
which quorum consists of Directors not at the time parties to the proceeding; or
(b) If a quorum cannot be obtained under Section 10.5.1(a), by a
majority vote of a committee duly designated by the Board of Directors
consisting solely of two or more Directors not at the time parties to the
proceeding. However, Directors who are parties to the proceeding may participate
in the designation of the committee; or
(c) By special legal counsel selected by the Board of Directors
or its committee in the manner prescribed in Section 10.5.1(a) or (b). If a
quorum of the Board of Directors cannot be obtained under Section 10.5.1(a) and
a committee cannot be designated under Section 10.5.1(b), the special legal
counsel shall be selected by majority vote of the full Board of Directors,
including Directors who are parties to the proceeding; or
(d) By the shareholders.
10.5.2 Authorization. Authorization of indemnification and evaluation
as to reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible, except that if the
determination is made by special legal counsel, authorization of indemnification
and evaluation as to reasonableness of expenses shall be made by those entitled
under Section 10.5.1(c) to select counsel.
10.6 Advance for Expenses. The Corporation shall pay for or reimburse the
reasonable expenses actually incurred by a Director who is a party to a
proceeding in advance of final disposition of the proceeding if:
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10.6.1 The Director furnishes the Corporation a written affirmation of
the Director's good faith belief that the Director has met the standard of
conduct described in Section 10.2; and
10.6.2 The Director furnishes the Corporation a written undertaking,
executed personally or on the Director's behalf, to repay the advance if it is
ultimately determined that the Director did not meet the required standard of
conduct. Such an undertaking must be an unlimited general obligation of the
Director, but need not be secured and shall be accepted without reference to
financial ability to make repayment.
10.7 Indemnification of Officers, Employees and Agents. The Corporation
may, by action of its Board of Directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to Officers, employees and agents of the Corporation to the same
extent and effect as provided in this Section with respect to the
indemnification and advancement of expenses of Directors of the Corporation or
pursuant to rights granted pursuant to, or provided by, the Oregon Business
Corporation Act or otherwise.
10.8 Insurance. The Corporation may, by action of its Board of Directors
from time to time, purchase and maintain insurance, even if the Corporation has
no power to indemnify the individual against the same liability under the Act,
on behalf of an individual against liability asserted against or incurred by the
individual who is or was a Director, Officer, employee or agent of the
Corporation or who while a Director, Officer, employee or agent of the
Corporation, 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.
10.9 Additional Indemnification; Nonexclusivity of Rights. The right to
indemnification and the payment of expenses with respect to a proceeding
conferred in this Section shall not be exclusive of any other rights which any
person may be entitled or hereafter acquire under any statute, provision of the
Articles of Incorporation, Bylaws, agreement, general or specific action of the
Board of Directors, vote of the shareholders or otherwise, and shall continue as
to a person who has ceased to be a Director, Officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
The Corporation may, upon action by the Board of Directors, make or agree
to make any further indemnification, including advancement of expenses, of any
Director, Officer, employee or agent by general or specific action of the Board
of Directors, in the bylaws or by contract or otherwise; provided, however, that
(i) to the extent such further indemnification applies to any Director, no such
further indemnification shall indemnify any Director from or on account of acts
or omissions for which liability is not eliminated under Article IX of the
Articles of Incorporation, and (ii) to the extent such further indemnification
applies to any Officer, employee or agent, any determination as to any indemnity
in excess of that provided Directors pursuant to Section 10.2 under this Section
10.9 shall be made in
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accordance with Section 10.5 hereof. The Corporation may enter into a contract
with any Director, Officer, employee or agent of the Corporation in furtherance
of the provisions of this Section and may create a trust fund, grant a security
interest or use other means including, without limitation, a letter of credit,
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section or otherwise.
SECTION 11. AMENDMENTS
Except as herein otherwise expressly provided, these Bylaws may be altered
or repealed, in any particular, and new Bylaws not inconsistent with any
provisions of the Articles of Incorporation or any provision of law may be
adopted, either by the affirmative vote of the holders of record of a majority
in number of the shares present in person or by proxy and entitled to vote at an
annual meeting of shareholders, or at a special meeting thereof, the notice of
which special meeting shall include the form of the proposed alteration or
repeal or of the proposed new Bylaws, or a summery thereof; or by the
affirmative vote of a majority of the Directors present at any meeting at which
a quorum is present, provided, in the latter case, that the notice of such
meeting shall include the form of the proposed alteration or repeal or of the
proposed new Bylaws, or a summary thereof.
Notwithstanding anything contained in these Bylaws to the contrary, either
(a) the affirmative vote of a majority of the Continuing Directors, as defined
in Article XI of the Articles of Incorporation, or (b) the affirmative vote of
the holders of record of at least two-thirds of the Voting Stock, as defined in
Article XI of the Articles of Incorporation, shall be required to alter, amend,
repeal or adopt any provision inconsistent with Sections 2.1, 2.2, 2.4, 2.6,
2.11, 2.14, 2.15, 3.2, 3.13 or 3.14 of these Bylaws.
Notwithstanding anything contained in these Bylaws to the contrary, either
(a) the recommendation of a majority of the continuing Directors, as defined in
Article XI of the Articles of Incorporation, together with the affirmative vote
of the holders of record of a majority of the Voting Stock, as defined in
Article XI of the Articles of Incorporation, or (b) the affirmative vote of the
holders of record of at least two-thirds of the Voting Stock, as defined in
Article XI of the Articles of Incorporation, shall be required to alter, amend,
repeal, or adopt any provision inconsistent with this Section 11.
SECTION 12. CONTROL SHARE ACQUISITION STATUTE
The provisions of Chapter 820, Oregon Laws 1987 shall apply fully to the
acquisition of shares of the Corporation.
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STOEL RIVES LLP EXHIBIT 5
---------------
ATTORNEYS
Standard Insurance Center
900 SW Fifth Avenue, Suite 2300
Portland, Oregon 97204-1268
Telephone (503) 224-3380
Fax (503) 220-2480
TDD (503) 221-1045
July 11, 1997
Sequent Computer Systems, Inc
15450 SW Koll Parkway
Beaverton, OR 97006-5700
We have acted as counsel for Sequent Computer Systems, Inc. (the "Company")
in connection with the preparation and filing of a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended, covering 6,037,500 shares of Common Stock of the Company being sold by
the Company, which number includes 787,500 shares subject to an overallotment
option granted by the Company to the underwriters, and 1,050,561 shares being
sold by certain selling shareholders (collectively, the "Shares"). We have
reviewed the corporate action of the Company in connection with this matter and
have examined the documents, corporate records and other instruments we deemed
necessary for the purpose of this opinion.
Based on the foregoing, it is our opinion that:
(i) The Company is a corporation existing under the laws of the State of
Oregon;
(ii) The Shares have been duly authorized;
(iii) The Shares to be sold by the Company, when issued and sold in the
manner described in the Registration Statement and in accordance with
resolutions adopted by the Board of Directors of the Company, and when payment
therefor shall have been received by the Company, will be legally issued, fully
paid and nonassessable; and
(iv) The currently outstanding Shares to be sold by the selling
shareholders have been legally issued and are fully paid and nonassessable; and
(v) The Shares to be sold by a selling shareholder upon conversion of the
Company's Convertible Notes, when converted in accordance with the terms of the
applicable Note Purchase Agreement, will be legally issued, fully paid and
nonassessable.
<PAGE>
June 19, 1995
Page 2
We consent to the use of our name in the Registration Statement and in the
Prospectus filed as a part thereof and to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
STOEL RIVES LLP
POWER OF ATTORNEY
(Registration Statement on Form S-3)
The undersigned, an officer and/or director of SEQUENT COMPUTER
SYSTEMS, INC. (the "Company"), constitutes and appoints KARL C. POWELL, JR.,
ROBERT S. GREGG and JOHN McADAM, and each of them, his true and lawful attorneys
and agents to do any and all acts and things and to execute in his or her name
(whether on behalf of the Company or as an officer or director of the Company,
or otherwise) any and all instruments that such attorney and agent may deem
necessary or advisable in order to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act"), and any requirements of the
Securities and Exchange Commission (the "SEC") in respect thereof, in connection
with the registration under the Act of shares of Common Stock of the Company,
including specifically, but without limitation, power and authority to sign his
or her name (whether on behalf of the Company or as an officer or director of
the Company, or otherwise) to a Registration Statement on Form S-3 and any
amendment thereto (including any post-effective amendment) or application for
amendment thereto in respect to such Common Stock or any exhibits filed
therewith; and to file the same with the SEC; and the undersigned ratifies and
confirms all that such attorney and agent shall do or cause to be done by virtue
hereof.
DATED: July 14, 1997
ROBERT S. GREGG
-----------------------------------
Robert S. Gregg
<PAGE>
POWER OF ATTORNEY
(Registration Statement on Form S-3)
The undersigned, an officer and/or director of SEQUENT COMPUTER
SYSTEMS, INC. (the "Company"), constitutes and appoints KARL C. POWELL, JR.,
ROBERT S. GREGG and JOHN McADAM, and each of them, his true and lawful attorneys
and agents to do any and all acts and things and to execute in his or her name
(whether on behalf of the Company or as an officer or director of the Company,
or otherwise) any and all instruments that such attorney and agent may deem
necessary or advisable in order to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act"), and any requirements of the
Securities and Exchange Commission (the "SEC") in respect thereof, in connection
with the registration under the Act of shares of Common Stock of the Company,
including specifically, but without limitation, power and authority to sign his
or her name (whether on behalf of the Company or as an officer or director of
the Company, or otherwise) to a Registration Statement on Form S-3 and any
amendment thereto (including any post-effective amendment) or application for
amendment thereto in respect to such Common Stock or any exhibits filed
therewith; and to file the same with the SEC; and the undersigned ratifies and
confirms all that such attorney and agent shall do or cause to be done by virtue
hereof.
DATED: July 8, 1997
KARL C. POWELL, JR.
-----------------------------------
Karl C. Powell, Jr.
<PAGE>
POWER OF ATTORNEY
(Registration Statement on Form S-3)
The undersigned, an officer and/or director of SEQUENT COMPUTER
SYSTEMS, INC. (the "Company"), constitutes and appoints KARL C. POWELL, JR.,
ROBERT S. GREGG and JOHN McADAM, and each of them, his true and lawful attorneys
and agents to do any and all acts and things and to execute in his or her name
(whether on behalf of the Company or as an officer or director of the Company,
or otherwise) any and all instruments that such attorney and agent may deem
necessary or advisable in order to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act"), and any requirements of the
Securities and Exchange Commission (the "SEC") in respect thereof, in connection
with the registration under the Act of shares of Common Stock of the Company,
including specifically, but without limitation, power and authority to sign his
or her name (whether on behalf of the Company or as an officer or director of
the Company, or otherwise) to a Registration Statement on Form S-3 and any
amendment thereto (including any post-effective amendment) or application for
amendment thereto in respect to such Common Stock or any exhibits filed
therewith; and to file the same with the SEC; and the undersigned ratifies and
confirms all that such attorney and agent shall do or cause to be done by virtue
hereof.
DATED: July 7, 1997
STEVE CHEN
-----------------------------------
Steve Chen
<PAGE>
POWER OF ATTORNEY
(Registration Statement on Form S-3)
The undersigned, an officer and/or director of SEQUENT COMPUTER
SYSTEMS, INC. (the "Company"), constitutes and appoints KARL C. POWELL, JR.,
ROBERT S. GREGG and JOHN McADAM, and each of them, his true and lawful attorneys
and agents to do any and all acts and things and to execute in his or her name
(whether on behalf of the Company or as an officer or director of the Company,
or otherwise) any and all instruments that such attorney and agent may deem
necessary or advisable in order to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act"), and any requirements of the
Securities and Exchange Commission (the "SEC") in respect thereof, in connection
with the registration under the Act of shares of Common Stock of the Company,
including specifically, but without limitation, power and authority to sign his
or her name (whether on behalf of the Company or as an officer or director of
the Company, or otherwise) to a Registration Statement on Form S-3 and any
amendment thereto (including any post-effective amendment) or application for
amendment thereto in respect to such Common Stock or any exhibits filed
therewith; and to file the same with the SEC; and the undersigned ratifies and
confirms all that such attorney and agent shall do or cause to be done by virtue
hereof.
DATED: July 6, 1997
JOHN MCADAM
-----------------------------------
John McAdam
<PAGE>
POWER OF ATTORNEY
(Registration Statement on Form S-3)
The undersigned, an officer and/or director of SEQUENT COMPUTER
SYSTEMS, INC. (the "Company"), constitutes and appoints KARL C. POWELL, JR.,
ROBERT S. GREGG and JOHN McADAM, and each of them, his true and lawful attorneys
and agents to do any and all acts and things and to execute in his or her name
(whether on behalf of the Company or as an officer or director of the Company,
or otherwise) any and all instruments that such attorney and agent may deem
necessary or advisable in order to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act"), and any requirements of the
Securities and Exchange Commission (the "SEC") in respect thereof, in connection
with the registration under the Act of shares of Common Stock of the Company,
including specifically, but without limitation, power and authority to sign his
or her name (whether on behalf of the Company or as an officer or director of
the Company, or otherwise) to a Registration Statement on Form S-3 and any
amendment thereto (including any post-effective amendment) or application for
amendment thereto in respect to such Common Stock or any exhibits filed
therewith; and to file the same with the SEC; and the undersigned ratifies and
confirms all that such attorney and agent shall do or cause to be done by virtue
hereof.
DATED: July 14, 1997
ROBERT C. MATHIS
-----------------------------------
Robert C. Mathis
<PAGE>
POWER OF ATTORNEY
(Registration Statement on Form S-3)
The undersigned, an officer and/or director of SEQUENT COMPUTER
SYSTEMS, INC. (the "Company"), constitutes and appoints KARL C. POWELL, JR.,
ROBERT S. GREGG and JOHN McADAM, and each of them, his true and lawful attorneys
and agents to do any and all acts and things and to execute in his or her name
(whether on behalf of the Company or as an officer or director of the Company,
or otherwise) any and all instruments that such attorney and agent may deem
necessary or advisable in order to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act"), and any requirements of the
Securities and Exchange Commission (the "SEC") in respect thereof, in connection
with the registration under the Act of shares of Common Stock of the Company,
including specifically, but without limitation, power and authority to sign his
or her name (whether on behalf of the Company or as an officer or director of
the Company, or otherwise) to a Registration Statement on Form S-3 and any
amendment thereto (including any post-effective amendment) or application for
amendment thereto in respect to such Common Stock or any exhibits filed
therewith; and to file the same with the SEC; and the undersigned ratifies and
confirms all that such attorney and agent shall do or cause to be done by virtue
hereof.
DATED: July 8, 1997
MICHAEL S. SCOTT MORTON
-----------------------------------
Michael S. Scott Morton
<PAGE>
POWER OF ATTORNEY
(Registration Statement on Form S-3)
The undersigned, an officer and/or director of SEQUENT COMPUTER
SYSTEMS, INC. (the "Company"), constitutes and appoints KARL C. POWELL, JR.,
ROBERT S. GREGG and JOHN McADAM, and each of them, his true and lawful attorneys
and agents to do any and all acts and things and to execute in his or her name
(whether on behalf of the Company or as an officer or director of the Company,
or otherwise) any and all instruments that such attorney and agent may deem
necessary or advisable in order to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act"), and any requirements of the
Securities and Exchange Commission (the "SEC") in respect thereof, in connection
with the registration under the Act of shares of Common Stock of the Company,
including specifically, but without limitation, power and authority to sign his
or her name (whether on behalf of the Company or as an officer or director of
the Company, or otherwise) to a Registration Statement on Form S-3 and any
amendment thereto (including any post-effective amendment) or application for
amendment thereto in respect to such Common Stock or any exhibits filed
therewith; and to file the same with the SEC; and the undersigned ratifies and
confirms all that such attorney and agent shall do or cause to be done by virtue
hereof.
DATED: July 14, 1997
RICHARD C. PALERMO
-----------------------------------
Richard C. Palermo
<PAGE>
POWER OF ATTORNEY
(Registration Statement on Form S-3)
The undersigned, an officer and/or director of SEQUENT COMPUTER
SYSTEMS, INC. (the "Company"), constitutes and appoints KARL C. POWELL, JR.,
ROBERT S. GREGG and JOHN McADAM, and each of them, his true and lawful attorneys
and agents to do any and all acts and things and to execute in his or her name
(whether on behalf of the Company or as an officer or director of the Company,
or otherwise) any and all instruments that such attorney and agent may deem
necessary or advisable in order to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act"), and any requirements of the
Securities and Exchange Commission (the "SEC") in respect thereof, in connection
with the registration under the Act of shares of Common Stock of the Company,
including specifically, but without limitation, power and authority to sign his
or her name (whether on behalf of the Company or as an officer or director of
the Company, or otherwise) to a Registration Statement on Form S-3 and any
amendment thereto (including any post-effective amendment) or application for
amendment thereto in respect to such Common Stock or any exhibits filed
therewith; and to file the same with the SEC; and the undersigned ratifies and
confirms all that such attorney and agent shall do or cause to be done by virtue
hereof.
DATED: July 2, 1997
ROBERT W. WILMOT
-----------------------------------
Robert W. Wilmot
