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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SEQUENT COMPUTER SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
PROXY STATEMENT
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The board of directors of Sequent Computer Systems, Inc. has approved a cash
merger with a wholly owned subsidiary of International Business Machines
Corporation. If the merger is completed, Sequent shareholders will receive $18
in cash for each share of Sequent common stock they own. After the merger,
Sequent will be a wholly owned subsidiary of IBM.
We cannot complete the merger unless the holders of a majority of the
outstanding shares of Sequent common stock vote to approve it at the special
meeting of the shareholders that has been called to consider the merger. Only
shareholders who hold shares of Sequent common stock on August 18, 1999 will be
entitled to vote at the special meeting. YOUR VOTE IS VERY IMPORTANT.
This proxy statement gives you detailed information about the special
meeting of the shareholders and the merger, and includes a copy of the merger
agreement.
After careful consideration, Sequent's board of directors has unanimously
adopted the merger agreement and approved the merger, and unanimously recommends
you vote in favor of the merger.
<TABLE>
<S> <C>
[LOGO] [LOGO]
Karl C. Powell, Jr. John McAdam
Chairman and Chief Executive President and Chief Operating
Officer Officer
</TABLE>
THIS PROXY STATEMENT IS DATED AUGUST 20, 1999, AND WAS FIRST MAILED
TO SHAREHOLDERS ON OR ABOUT AUGUST 24, 1999.
<PAGE>
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 24, 1999
To the Shareholders of Sequent:
A special meeting of shareholders of Sequent will be held on September 24,
1999, at 9:00 a.m., local time, at the Company's facilities at 15450 S.W. Koll
Parkway, Beaverton, Oregon for the following purpose:
To consider and vote on a proposal to approve the merger agreement,
including the plan of merger, among IBM, Pathfinder Acquisition Corp., a
wholly owned subsidiary of IBM, and Sequent. Under the terms of the merger
agreement, each share of common stock of Sequent outstanding immediately
before the merger will be converted into the right to receive $18 in cash,
and Sequent will become a wholly owned subsidiary of IBM.
A proxy card and a proxy statement containing more detailed information
about the special meeting of the shareholders and the merger, including a copy
of the merger agreement, accompany this notice.
By Order of the Board of Directors,
[LOGO]
Karl C. Powell, Jr.
Chairman of the Board
and Chief Executive Officer
Beaverton, Oregon
August 20, 1999
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE COMPLETE, SIGN, DATE
AND MAIL THE ENCLOSED PROXY CARD PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 1
SUMMARY.................................................................................................... 2
The companies............................................................................................ 2
The merger............................................................................................... 2
The special meeting...................................................................................... 4
MARKET PRICES AND DIVIDENDS................................................................................ 7
THE SPECIAL MEETING........................................................................................ 8
Recommendation of the board.............................................................................. 8
Votes required for approval of the merger agreement...................................................... 8
Voting of proxies........................................................................................ 8
How to revoke a proxy.................................................................................... 9
Solicitation of proxies.................................................................................. 9
THE COMPANIES.............................................................................................. 10
Sequent.................................................................................................. 10
IBM...................................................................................................... 10
IBM merger subsidiary.................................................................................... 10
THE MERGER................................................................................................. 11
Background of the merger................................................................................. 11
Reasons for the merger................................................................................... 13
Opinion of financial advisor............................................................................. 14
Interests of members of the Sequent board of directors and management in the merger...................... 20
Accounting treatment..................................................................................... 21
U.S. federal income tax consequences..................................................................... 22
Regulatory matters....................................................................................... 23
Dissenters' rights....................................................................................... 23
THE MERGER AGREEMENT....................................................................................... 23
The merger............................................................................................... 24
Effective time of the merger............................................................................. 24
Treatment of stock options............................................................................... 24
Payment for shares....................................................................................... 25
Representations and warranties........................................................................... 26
Covenants................................................................................................ 27
No solicitation of transactions.......................................................................... 28
Reasonable best efforts.................................................................................. 29
Benefit plans............................................................................................ 30
Conditions to the parties' obligations to complete the merger............................................ 30
Additional conditions to obligation of IBM............................................................... 30
Termination.............................................................................................. 31
Termination fees......................................................................................... 32
Amendment and waiver..................................................................................... 32
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT..................................................... 33
INDEPENDENT ACCOUNTANTS.................................................................................... 34
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING.............................................................. 34
</TABLE>
i
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<TABLE>
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PAGE
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<S> <C>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION................................................. 34
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 35
APPENDIX A--Agreement and Plan of Merger................................................................... A-1
APPENDIX B--Opinion of Morgan Stanley & Co. Incorporated................................................... B-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL SEQUENT SHAREHOLDERS RECEIVE FOR THEIR SEQUENT SHARES IN THE
MERGER?
A: If we complete the merger, Sequent shareholders will receive the merger
consideration of $18 in cash, without interest, in exchange for each of
their shares of Sequent common stock.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering this proxy statement, please
complete, sign and date your proxy card. Then mail the proxy card in the
enclosed return envelope as soon as possible so that your shares may be
represented at the special meeting and voted as you wish on whether to
approve the merger. If you sign and mail your proxy card but do not indicate
how you want your shares to be voted, your shares will be voted in favor of
approving the merger. If you do not vote or if you abstain, it will have the
effect of a vote against approving the merger.
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY SHARES
FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote your shares. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares. Without
instructions, your shares will not be voted, which will have the effect of a
vote against the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy card. If you choose either of these two
methods, you must deliver your notice of revocation or your new proxy card
to the Secretary of Sequent at the address on page 9 before the vote at the
special meeting. Third, you can attend the special meeting and vote in
person. Simply attending the meeting, however, will not revoke your proxy.
If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES AT THIS TIME?
A: No. After the merger is completed, IBM will send you written instructions
explaining how to exchange your shares for the merger consideration.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working toward completing the merger as quickly as possible. In
addition to obtaining shareholder approval, we must satisfy all other
closing conditions, including the expiration or termination of applicable
regulatory waiting periods. We expect to complete the merger about the end
of September 1999.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT SEQUENT?
A: You may obtain additional information about Sequent as described under "Where
You Can Find More Information" on page 35.
Q: WHOM DO I CONTACT IF I HAVE QUESTIONS ABOUT THE SPECIAL MEETING OR THE
MERGER?
A: If you have questions about the special meeting or the merger or if you need
additional copies of this proxy statement or the enclosed proxy card, you
should contact our proxy solicitor:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
(800) 848-3374
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT AND
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND
THE MERGER AND RELATED MATTERS FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE
LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY STATEMENT
AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 35. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE REFERENCE
DIRECTING YOU TO A MORE COMPLETE DESCRIPTION OF THAT ITEM.
THE COMPANIES (SEE PAGE 10)
SEQUENT COMPUTER SYSTEMS, INC.
Sequent is a leader in providing Intel-based data center solutions and
pioneered symmetric multiprocessor and non-uniform memory access systems for
commercial environments. Sequent's principal executive offices are located at
15450 SW Koll Parkway, Beaverton, Oregon 97006 and its telephone number is (503)
626-5700.
INTERNATIONAL BUSINESS MACHINES CORPORATION
IBM develops and manufactures advanced information technologies, including
computer systems, software, networking systems storage drives and
microelectronics. IBM translates these advanced technologies into value for its
customers through its professional solutions and services worldwide. IBM's
principal executive offices are located at New Orchard Road, Armonk, New York
10504 and its telephone number is (914) 499-1900.
PATHFINDER ACQUISITION CORP.
Pathfinder Acquisition Corp. is a wholly owned subsidiary of IBM. Pathfinder
was organized solely for the purpose of entering into the merger agreement with
Sequent and completing the merger and has not conducted any business operations.
THE MERGER
WHAT YOU WILL RECEIVE (SEE PAGE 24)
In the merger you will receive, for each share of Sequent common stock you
own, the merger consideration of $18 in cash, without interest.
After the merger is completed, you will have the right to receive the merger
consideration but you will no longer have any rights as Sequent shareholders.
Sequent shareholders will receive the merger consideration after turning in
their Sequent stock certificates in accordance with the instructions contained
in the letter of transmittal to be sent by IBM to Sequent shareholders shortly
after completion of the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 22)
The receipt of cash by Sequent shareholders in the merger will be a taxable
transaction for federal income tax purposes. You should consult your own tax
advisor for a full understanding of the tax consequences of the merger to you.
DISSENTERS' RIGHTS
Under Oregon law dissenters' rights are not available in a merger to holders
of any shares of stock which, like the Sequent common stock, are listed for
quotation on the Nasdaq National Market. Accordingly, Sequent shareholders have
no dissenters' rights in connection with the merger.
INTERESTS OF MEMBERS OF SEQUENT'S BOARD OF DIRECTORS AND MANAGEMENT IN THE
MERGER (SEE PAGE 20)
When you consider the recommendation of the Sequent board of directors that
Sequent shareholders vote in favor of the merger, you should be aware that
Sequent's directors and officers may have interests in the merger that are
different from, or in addition to, yours. For example,
- the vesting period of options to purchase Sequent common stock held by its
directors and officers and restricted stock awards will accelerate upon
the approval of the merger by the Sequent shareholders,
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- those options will be converted in the merger into options to purchase
shares of IBM common stock on their then existing terms, except that the
option price and the number of shares subject to the option will be
adjusted based on the merger consideration as described under "The Merger
Agreement--Treatment of stock options,"
- those options may also be converted into the right to receive a cash
payment as described under "The Merger Agreement--Treatment of stock
options," and
- some directors and officers of Sequent will become eligible to receive
severance payments under change of control agreements if their employment
is terminated under specific circumstances within a specified time after
the completion of the merger.
REGULATORY REQUIREMENTS WITH RESPECT TO THE MERGER (SEE PAGE 23)
Under the Hart-Scott-Rodino Act, the merger cannot be completed until IBM
and Sequent have given specified information and materials to the Department of
Justice and the Federal Trade Commission and a required waiting period has
expired or terminated. The companies submitted the required pre-merger
notification and report forms and received notification of early termination of
the waiting period on August 20, 1999.
CONDITIONS TO THE MERGER (SEE PAGE 30)
Completion of the merger depends upon meeting a number of conditions,
including:
- approval of the merger by the holders of a majority of the outstanding
shares of Sequent common stock,
- expiration or termination of any other applicable competition, merger
control, antitrust or similar law,
- no law or ruling may exist that prevents the completion of the merger,
- no (1) law or ruling may exist that would, and (2) no proceeding may exist
that seeks to:
-- restrain the completion of the merger,
-- limit in any material respect the ownership or operation by Sequent or
IBM of a material portion of its businesses or assets or
-- prohibit IBM from controlling in any material respect a substantial
portion of Sequent's business,
- receipt of all approvals and authorizations from governmental entities
that are legally required, all other consents, approvals and
authorizations from governmental entities or third parties other than
those that would not have a materially adverse effect on Sequent and
certain specified consents, approvals and waivers,
- no outstanding warrants to purchase Sequent common stock may exist, and
- accuracy of the representations and warranties and performance of the
obligations of IBM and Sequent in all material respects.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 31)
1. Sequent and IBM may agree to terminate the merger agreement without
completing the merger, even after the shareholders of Sequent have approved the
merger.
2. IBM or Sequent may terminate the merger agreement if:
- the merger is not completed by April 30, 2000,
- any law or ruling prohibiting the completion of the merger has become
final and cannot be appealed,
- the holders of a majority of the outstanding shares of Sequent common
stock do not approve the merger at the special meeting of the
shareholders, or
3
<PAGE>
- the other party materially breaches its representations, warranties,
covenants or agreements under the merger agreement and does not timely
cure the breach.
3. IBM may terminate the merger agreement if:
- the Sequent board of directors fails to reconfirm its recommendation that
the Sequent shareholders vote to approve the merger within the required
time period after a request by IBM to do so following Sequent's receipt of
a proposal from a third party regarding a merger involving Sequent or the
acquisition of 20% or more of Sequent's common stock or a business that
constitutes 20% or more of the total revenue, operating income or assets
of Sequent, or
- a law or ruling that has the effect set forth under the fourth condition
described above under "--Conditions to the merger" becomes final and
cannot be appealed.
4. Before the special meeting of the shareholders, Sequent may terminate the
merger agreement upon five business days' notice to IBM of its intention to do
so if:
- Sequent receives an unsolicited proposal from a third party to acquire
more than 50% of Sequent's common stock or substantially all Sequent's
assets for consideration that is determined by the Sequent board of
directors to have a higher value than the merger consideration and which
is determined by the Sequent board of directors to be more favorable to
the Sequent shareholders than the merger, in each case taking into account
any changes to the merger agreement made by IBM in response to a proposal,
- at the time of termination, Sequent enters into a definitive agreement
relating to such a proposal,
- the Sequent board of directors determines in good faith that those actions
are necessary to satisfy its fiduciary duties to the Sequent shareholders,
and
- Sequent has previously paid the $25 million termination fee.
FEE PAYABLE UNDER SPECIFIED CIRCUMSTANCES IF THE MERGER IS NOT COMPLETED
(SEE
PAGES 32)
The merger agreement requires Sequent to pay IBM a termination fee of $25
million if:
- (a) Sequent or its shareholders receives a proposal described in paragraph
3 above under "--Termination of the merger agreement," (b) IBM or Sequent
then terminates the merger agreement for the first or third reason
described in paragraph 2 above under "--Termination of the merger
agreement" and (c) within 12 months of the termination Sequent enters into
an agreement relating to or completes an alternative transaction,
- IBM terminates the merger agreement for the first reason described in
paragraph 3 above under "--Termination of the merger agreement," or
- Sequent terminates the merger agreement for the reason described in
paragraph 4 above under "--Termination of the merger agreement."
REASONS FOR THE MERGER (SEE PAGE 13)
The Sequent board of directors believes, as a result of various factors
relating to, among other things, Sequent and to the computer server industry
generally, the value of Sequent's common stock will be maximized by converting
those shares into the right to receive the merger consideration.
THE SPECIAL MEETING
RECORD DATE AND SHAREHOLDER VOTE REQUIRED TO APPROVE THE MERGER (SEE PAGE 8)
You are entitled to vote at the special meeting if you owned Sequent common
stock at the close of business on August 18, 1999, which is the record date set
by the Sequent board of directors for purposes of determining which
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<PAGE>
shareholders are entitled to vote at the special meeting. The affirmative vote
of the holders of a majority of the shares of Sequent common stock outstanding
as of the close of business on the record date is required to approve the
merger.
IF YOU DO NOT VOTE YOUR SHARES, IT WILL HAVE THE EFFECT OF A VOTE AGAINST
THE MERGER.
On the record date, there were 42,227,149 shares of Sequent common stock
entitled to vote at the special meeting. You will have one vote for each share
of Sequent common stock that you owned on the record date.
RECOMMENDATIONS TO SHAREHOLDERS (SEE
PAGE 8)
All the members of the Sequent board of directors recommend that you vote
"FOR" the proposal to approve the merger.
FAIRNESS OPINION (SEE PAGE 14)
In deciding to approve the merger, the Sequent board of directors considered
the opinion of Morgan Stanley & Co. Incorporated, its financial advisor, that as
of July 11, 1999 and subject to and based on the considerations in its opinion,
the merger consideration to be paid in the merger is fair to the Sequent
shareholders from a financial point of view. This opinion is attached as
Appendix B to this proxy statement. We encourage you to read this opinion
carefully.
5
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SEQUENT SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The table below shows selected historical financial information about
Sequent. This summary of financial information for Sequent for the fiscal years
1994 to 1998 was taken from and should be read along with the audited financial
statements contained in Sequent's most recent annual report on Form 10-K.
Information for the six months ended July 4, 1998 and July 3, 1999 was taken
from financial statements that have not been audited but which, we believe,
fairly present Sequent's financial position and results of operations and cash
flows for the periods, and should be read along with Sequent's most recently
filed quarterly report on Form 10-Q. See "Where You Can Find More Information"
on page 35.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
-------------------- -----------------------------------------------------
JULY 3, JULY 4, JAN. 2, JAN. 3, DEC. 28, DEC. 30, DEC. 31,
1999 1998 1999 1998 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenue................ $ 337,496 $ 368,745 $ 784,156 $ 833,886 $ 595,362 $ 540,345 $ 450,823
Income (loss) before income
taxes...................... $ (24,339) $ (79,253) $ (76,071) $ 50,512 $ 10,676 $ 47,327 $ 38,800
Net income (loss)............ $ (15,308) $ (54,730) $ (52,519) $ 38,687 $ 7,771 $ 35,073 $ 33,134
Net income (loss) per share--
basic...................... $ (0.36) $ (1.26) $ (1.21) $ 1.02 $ 0.23 $ 1.09 $ 1.08
Net income (loss) per share--
diluted.................... $ (0.36) $ (1.26) $ (1.21) $ 0.95 $ 0.23 $ 1.04 $ 1.03
BALANCE SHEET DATA
Working capital.............. $ 271,752 $ 349,030 $ 324,674 $ 404,066 $ 191,810 $ 214,749 $ 168,468
Total assets................. $ 707,724 $ 787,506 $ 796,115 $ 886,677 $ 603,627 $ 503,923 $ 435,977
Long-term obligations........ $ 6,531 $ 8,821 $ 7,480 $ 9,910 $ 16,503 $ 9,106 $ 10,341
Shareholders' equity......... $ 513,591 $ 557,005 $ 552,854 $ 600,784 $ 374,809 $ 353,188 $ 291,195
</TABLE>
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MARKET PRICES AND DIVIDENDS
Sequent's common stock is listed on the Nasdaq National Market under the
symbol "SQNT." The following table shows, for the calendar quarters indicated,
the high and low sale prices of Sequent common stock, as reported on the Nasdaq
National Market, based on published financial sources. We have not paid any cash
dividends on our common stock for the periods shown.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Calendar Year 1997
First Quarter............................................................ $ 20.00 $ 14.50
Second Quarter........................................................... $ 21.63 $ 14.75
Third Quarter............................................................ $ 30.63 $ 20.88
Fourth Quarter........................................................... $ 26.88 $ 19.50
Calendar Year 1998
First Quarter............................................................ $ 22.00 $ 16.00
Second Quarter........................................................... $ 19.81 $ 11.88
Third Quarter............................................................ $ 12.19 $ 6.44
Fourth Quarter........................................................... $ 12.88 $ 5.75
Calendar Year 1999
First Quarter............................................................ $ 15.00 $ 8.31
Second Quarter........................................................... $ 17.75 $ 7.84
Third Quarter (through August 19, 1999).................................. $ 17.44 $ 15.00
</TABLE>
The following table shows the high and low sale prices of Sequent common
stock, as reported on the Nasdaq National Market, based on published financial
sources, for the dates indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
June 16, 1999, the day before rumors of the merger discussions between
Sequent and IBM became publicly known.................................... $ 12.25 $ 11.69
June 28, 1999, the day before the publication of an article in The Wall
Street Journal reporting rumors of the merger discussions between Sequent
and IBM.................................................................. $ 14.06 $ 13.25
July 9, 1999, the last trading day before the announcement of the merger... $ 17.50 $ 16.50
August 19, 1999, the last trading day before the date of this proxy
statement................................................................ $ 16.75 $ 15.50
</TABLE>
7
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THE SPECIAL MEETING
This proxy statement is being furnished to shareholders of Sequent as part
of the solicitation of proxies by the Sequent board of directors for use at a
special meeting of shareholders to be held on September 24, 1999 at 9:00 a.m.
local time, at the Company's facilities at 15450 S.W. Koll Parkway, Beaverton,
Oregon. This proxy statement and the enclosed proxy card are first being mailed
to the shareholders of Sequent on or about August 24, 1999.
The purpose of the special meeting is to consider and vote on a proposal to
approve the merger agreement, including the plan of merger.
A proxy card for use at the special meeting accompanies each copy of this
proxy statement mailed to holders of Sequent common stock.
As of August 18, 1999, directors and executive officers of Sequent and their
affiliates beneficially owned approximately 352,178 shares of Sequent common
stock, or less than 1% of the shares of Sequent common stock outstanding on that
date.
RECOMMENDATION OF THE BOARD
The Sequent board of directors has unanimously adopted the merger agreement
and approved the merger. The Sequent board of directors believes the
transactions contemplated by the merger agreement are advisable and in the best
interests of the shareholders of Sequent. Accordingly, the Sequent board
unanimously recommends that the shareholders of Sequent vote "FOR" approval of
the merger agreement. In making its determination to approve the merger, the
Sequent board considered, among other things, the opinion of Morgan Stanley that
as of the date of the merger agreement and subject to and based on the
considerations in its opinion, the merger consideration was fair from a
financial point of view to Sequent shareholders. See "The Merger--Reasons for
the merger."
VOTES REQUIRED FOR APPROVAL OF THE MERGER AGREEMENT
The affirmative vote of the holders of a majority of the shares of Sequent
common stock outstanding on the record date is required to approve the merger.
Each holder of Sequent common stock on the record date is entitled to one vote
per share held by him or her on the proposal to approve the merger agreement.
Only holders of record of Sequent common stock at the close of business on
the record date will be entitled to receive notice of and vote at the special
meeting. As of the record date, there were 42,227,149 shares of Sequent common
stock outstanding. Holders of a majority of the outstanding shares of Sequent
common stock entitled to vote, present in person or represented by proxy, will
constitute a quorum for the transaction of business at the special meeting.
A list of Sequent shareholders entitled to vote at the Sequent special
meeting will be available during normal business hours at the corporate offices
of Sequent, 15450 SW Koll Parkway, Beaverton, Oregon 97006.
VOTING OF PROXIES
To submit a proxy, holders of shares of Sequent common stock should
complete, sign, date and mail the enclosed proxy card in accordance with the
instructions set forth on the card.
All shares of Sequent common stock represented at the special meeting by
properly executed proxy cards received prior to or at the special meeting,
unless those proxy cards previously have been revoked, will be voted at the
special meeting in the manner specified on the proxy card. Signed proxy cards
that do not contain voting instructions will be voted "FOR" the merger.
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If a signed proxy card is returned and the shareholder has explicitly
abstained from voting on the merger, the shares represented by the proxy will be
considered present at the special meeting for purposes of determining whether a
quorum exists, but will not count as votes cast in favor of the merger and,
therefore, will have the same effect as a vote against the merger. Likewise,
broker non-votes will be counted for purposes of determining whether a quorum
exists at the special meeting but will not count as votes cast in favor of the
merger, and therefore, will have the same effect as a vote against the merger.
If the special meeting is adjourned for any reason, the approval of the
merger may be considered and voted upon by shareholders at the subsequent
reconvened meeting. All proxies will be voted in the same manner as they would
have been voted at the original meeting, except for any proxies that have been
properly withdrawn or revoked.
HOW TO REVOKE A PROXY
A proxy may be revoked by
- delivering to the Secretary of Sequent, before the vote at the special
meeting, a written notice of revocation dated after the date of the proxy
card,
- signing a later proxy relating to the same shares and delivering it to the
Secretary of Sequent before the vote at the special meeting, or
- attending the special meeting and voting in person (although merely
attending the special meeting will not revoke your proxy).
All written notices of revocation and other communications about revocation
of proxies should be addressed to Sequent, 15450 SW Koll Parkway, Beaverton,
Oregon 97006, Attention: Mr. David Cunningham, Corporate Counsel and Secretary,
or hand delivered to the Secretary before the vote at the special meeting.
SOLICITATION OF PROXIES
Sequent will bear the cost of soliciting proxies. In addition to
solicitation by mail, our directors, officers and employees may solicit proxies
from holders of Sequent common stock by telephone, in person or through other
means. We will not compensate these people for this solicitation, but we will
reimburse them for reasonable out-of-pocket expenses they incur in connection
with this solicitation. We will also arrange for brokerage firms, fiduciaries
and other custodians to send solicitation materials to the beneficial owners of
shares held of record by those persons. We will reimburse these brokerage firms,
fiduciaries and other custodians for reasonable out-of-pocket expenses they
incur in that connection. D.F. King & Co., Inc., our proxy solicitor, will
assist in the solicitation of proxies for a fee of $7,500, plus reimbursement of
reasonable out-of-pocket expenses. We will indemnify our proxy solicitor against
specific liabilities and expenses, including liabilities and expenses under the
federal securities laws.
9
<PAGE>
THE COMPANIES
SEQUENT
Sequent, an Oregon corporation, was originally incorporated in Delaware in
1983. Sequent is a leader in Intel-based data center solutions and pioneered
symmetric multiprocessor and non-uniform memory access systems for commercial
environments. Sequent's principal executive offices are located at 15450 SW Koll
Parkway, Beaverton, Oregon 97006 and its telephone number is (503) 626-5700.
IBM
IBM, a New York corporation, develops and manufactures advanced information
technologies, including computer systems, software, networking systems, storage
drives and microelectronics. IBM translates these advanced technologies into
value for its customers through its professional solutions and services
worldwide. IBM's principal executive offices are located at New Orchard Road,
Armonk, New York 10504 and its telephone number is (914) 499-1900.
IBM MERGER SUBSIDIARY
Pathfinder Acquisition Corp. is an Oregon corporation and a wholly owned
subsidiary of IBM. Pathfinder was organized solely for the purpose of entering
into the merger agreement with Sequent and completing the merger and has not
conducted any business operations.
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<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
In their efforts to enhance and grow their respective businesses, IBM and
Sequent have held commercial and technical discussions from time to time in
recent years concerning possible business relationships with each other. These
discussions have resulted in various business, technical and joint development
agreements between Sequent and IBM. For example:
- IBM has been a supplier to Sequent of technology and storage equipment for
approximately three years, and
- in October 1998, Sequent joined IBM as a strategic development partner in
"Project Monterey", an undertaking to develop a widely-accepted UNIX
operating system.
In 1997 Sequent began to explore strategic alternatives, including corporate
partnering and acquisition possibilities. Sequent retained Morgan Stanley during
1997 to assist it in this broad-ranging exploration. From 1997 through 1999,
Sequent and Morgan Stanley engaged in discussions with a number of companies
regarding potential strategic business relationships and business combinations.
No acceptable proposals for possible relationships or combinations emerged from
the discussions with these companies. On April 5, 1999, Sequent terminated
Morgan Stanley's engagement as its financial advisor, and Morgan Stanley
discontinued its efforts in this regard on Sequent's behalf.
On June 2, 1999 Bob Stephenson, Senior Vice President and Group Executive of
IBM's Server Group, contacted Karl C. Powell, Jr., Chairman of the Board and
Chief Executive Officer of Sequent, to set up a meeting between Mr. Powell and
Mr. Stephenson. The purpose of this meeting was to discuss the possibility of a
business combination or furthering the strategic working relationships between
IBM and Sequent.
On June 11 Mr. Powell and Robert S. Gregg, Senior Vice President, Finance
and Legal and Chief Financial Officer of Sequent, met with Mr. Stephenson and
Lee Dayton, Vice President, Corporate Development and Real Estate of IBM, and
discussed the possibility of a business combination between IBM and Sequent.
Because the two companies were already engaged in Project Monterey and other
collaborations, both parties were somewhat familiar with the other's technical
expertise and operations. At this meeting, the IBM and Sequent executives
determined to proceed with an investigation of the business merits of a possible
business combination, as well as a parallel effort to determine if an agreement
could be reached on the price to be paid Sequent shareholders in such a
transaction.
On June 12 Sequent contacted representatives of Wilson, Sonsini, Goodrich &
Rosati (WSGR), which was retained as special outside counsel to Sequent, and
representatives of Morgan Stanley, which was retained as financial advisor to
Sequent, in connection with a possible transaction with IBM. These parties
agreed Morgan Stanley would contact Mr. Dayton of IBM to begin discussions.
Simultaneously, these parties agreed Morgan Stanley would prepare a presentation
for the Sequent board of directors on the value of Sequent's business.
On June 15 the Sequent board of directors met and discussed the possibility
of a business combination with IBM. Representatives of WSGR discussed with the
board the process of negotiating and completing a business combination and gave
a presentation on the directors' fiduciary responsibilities. In addition, Morgan
Stanley presented preliminary valuation information to the board. After
discussion, the Sequent board authorized management and Sequent's advisors to
continue discussions with IBM.
On June 16 a group of executives from Sequent, including Mr. Gregg, and
representatives from Morgan Stanley, met with Mr. Dayton and other IBM
representatives at IBM's executive offices in Armonk, New York. The discussions
at this meeting included a presentation by Sequent regarding the
11
<PAGE>
range of the possible values of Sequent's business based on synergies with IBM.
Following this meeting, a similar presentation was given by Mr. Powell in
Rochester, Minnesota to Mr. Stephenson.
On June 17 the Sequent board met again to discuss a possible business
combination with IBM. After discussion of the board's fiduciary duties with
representatives of WSGR and a presentation by Morgan Stanley regarding the terms
of a potential transaction with IBM, the Board authorized management and
Sequent's advisors to continue discussions with IBM.
On June 18 the Sequent board met to discuss the proposed transaction and the
price negotiations. At the meeting, the Sequent board discussed their desired
terms and instructed WSGR to prepare a draft term sheet that would outline the
major points of a definitive merger agreement that would be acceptable to
Sequent. The draft term sheet was sent to Sequent and IBM later that day. IBM
sent the draft term sheet to Cravath, Swaine & Moore, its outside counsel, on
June 21.
On June 21 Mr. Dayton and representatives of Morgan Stanley held a
discussion regarding the terms of a possible transaction, including price.
The Sequent board met again on June 23 to discuss the status of and to
review the term sheet drafted by WSGR. Later on June 23 representatives of
Morgan Stanley again spoke with Mr. Dayton concerning the terms of the proposed
transaction, including price.
On June 24 the Sequent board met and discussed the proposed transaction. The
board discussed the viability of remaining an independent entity in a
consolidating industry, the difficulties faced by Sequent in attracting software
vendors to port their products to Sequent's server in light of Sequent's small
size relative to many of its competitors and the uncertainty facing Sequent as
it made key transitions in its business. The board also discussed the
possibility of other business combinations, including those with other potential
parties with whom discussions had been held over the previous two years and the
other factors described under "Reasons for the merger". The Sequent board
contacted some of these other parties after its meeting. The Sequent board
further discussed the possible results of operations of the fiscal quarter due
to close on July 3, and the challenges that Sequent might face in the future in
achieving its operating result objectives.
On June 24 representatives of WSGR held a discussion with Mr. Dayton to
discuss the terms of the proposed transaction, including price.
Also on June 24, Cravath sent comments on the term sheet to WSGR. Cravath
and WSGR held negotiations regarding the terms and conditions of the proposed
merger set forth in the term sheet on June 25.
On June 25 Mr. Gregg discussed the proposed transaction with Mr. Dayton,
including a discussion of the commencement of due diligence investigations in
connection with the proposed transaction.
From June 26 until July 6, representatives of IBM and Cravath held
discussions and met with members of Sequent's management and representatives of
Morgan Stanley in Portland, Oregon at the offices of Stoel Rives LLP, outside
counsel to Sequent, to conduct legal, financial and technical due diligence
investigations.
On June 27 Mr. Powell and John McAdam, Sequent's President and Chief
Operating Officer, met with Messrs. Dayton and Stephenson in San Francisco to
discuss structural aspects of the proposed transaction and possible ways to
ensure the retention of key employees after the transaction.
On June 29, an article appeared in The Wall Street Journal reporting rumors
of merger discussions between Sequent and IBM.
On June 29 representatives of Cravath sent a draft merger agreement to WSGR.
From June 30, 1999 through July 11, 1999, WSGR, Stoel Rives, Cravath and
representatives of IBM and Sequent held regular negotiations concerning the
terms and conditions of the proposed merger agreement, including
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<PAGE>
negotiation of the conditions to the proposed merger, the circumstances under
which the merger agreement could be terminated, restrictions on Sequent's
ability to solicit or negotiate an alternative transaction under the merger
agreement, the representations and warranties to be made by IBM and Sequent and
the restrictions on the conduct of Sequent's business during the pendency of the
merger.
On July 11 the Sequent board met to discuss the proposed transaction. At
this meeting, the board received a presentation from WSGR on the proposed merger
agreement and received the opinion (and a presentation describing the bases for
the opinion) of Morgan Stanley that, as of July 11, 1999 and subject to and
based on the considerations in its opinion, the consideration to be received by
the holders of shares of Sequent common stock under the proposed merger
agreement was fair from a financial point of view to the holders. The Sequent
board adopted the plan of merger, approved the proposed merger and instructed
management to finalize and execute the merger agreement. Late that night, IBM
and Sequent signed the merger agreement. IBM and Sequent issued a press release
announcing the merger the following morning.
REASONS FOR THE MERGER
In arriving at its determination to approve the merger, the Sequent board
considered the opportunity the merger would provide to secure a premium for
shareholders over recent market prices of Sequent common stock. In comparing
this premium with the return on shareholder investment believed to be achievable
through future appreciation of Sequent common stock if Sequent remained an
independent company, the Sequent board considered various factors affecting
Sequent's future financial performance and prospects. These factors included:
- increasing consolidation in the industry and Sequent's ability to compete
with larger companies with substantially greater resources and name
recognition than Sequent,
- Sequent's ability to continue to motivate software developers to port
their offerings to Sequent's platform, and
- Sequent's ability to continue to attract experienced and qualified
engineers and other personnel in a highly competitive marketplace.
In the course of its deliberations, the Sequent board considered, among
other things:
- historical information concerning Sequent's business, prospects, financial
performance and condition, operations, technology, management and
competitive position,
- current financial market conditions and historical market prices,
volatility and trading information with respect to Sequent's common stock,
- the merger consideration to be received by the holders of shares of
Sequent common stock in the merger and a comparison of comparable merger
transactions,
- the strong reputation and financial condition of IBM,
- the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants and the conditions to their
respective obligations, are reasonable,
- the fact that the merger agreement permits the Sequent board to furnish
information to, or to engage in negotiations with, third parties and to
terminate the merger agreement, in each case only in response to an
unsolicited superior proposal in accordance with the terms described below
under "The Merger Agreement--No solicitation of transactions" and the
belief of the Sequent board that the payment by Sequent of a termination
fee of $25 million to IBM in the event of such a termination would not
unreasonably discourage third parties from making a superior proposal,
13
<PAGE>
- the business and financial prospects of Sequent as an independent company,
- the potential for other third parties to enter into strategic
relationships with or to acquire Sequent if Sequent did not enter into the
merger agreement,
- the fact that Sequent had contact with several alternative parties to
discuss a possible acquisition and that although these parties were each
afforded ample time to submit an offer to acquire Sequent, none of these
parties made an offer,
- the possibility that the merger might not be consummated and the effect of
public announcement of the merger on (a) Sequent's sales, operating
results and stock price and (b) Sequent's ability to attract and retain
key management, marketing and technical personnel,
- the financial effect of the merger, and
- the opinion of Morgan Stanley that, as of July 11, 1999 and subject to and
based on the matters described in its opinion, the merger consideration to
be received by the holders of shares of Sequent common stock in the merger
was fair from a financial point of view to the Sequent shareholders.
The Sequent board concluded that the benefits of the merger outweigh any of
the potentially negative factors it considered.
The discussion above sets forth the material information and factors
considered by our board in its consideration of the merger agreement. In view of
the wide variety of factors considered, the Sequent board did not find it
practicable to, and did not, make specific assessments of, quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its determination. The determination to approve the merger was made
after consideration of all of the factors as a whole. In addition, individual
members of our board may have given different weights to different factors.
OPINION OF FINANCIAL ADVISOR
Under an engagement letter dated July 6, 1999, Sequent retained Morgan
Stanley to provide it with financial advisory services and a financial fairness
opinion in connection with the merger. The Sequent board of directors selected
Morgan Stanley to act as Sequent's financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of Sequent. At the meeting of the Sequent board of directors on July 11,
1999, Morgan Stanley rendered its oral opinion, subsequently confirmed in
writing, that as of July 11, 1999 and subject to and based on the considerations
in its opinion, the consideration to be received by holders of shares of Sequent
common stock pursuant to the merger agreement was fair from a financial point of
view to the holders of shares of Sequent common stock.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY IS ATTACHED AS
APPENDIX B TO THIS PROXY STATEMENT AND SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE AND PROCEDURES FOLLOWED, AND MATTERS AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION.
MORGAN STANLEY'S OPINION IS DIRECTED TO THE SEQUENT BOARD OF DIRECTORS AND
ADDRESSES ONLY THE FAIRNESS OF THE MERGER CONSIDERATION TO BE RECEIVED BY THE
HOLDERS OF SHARES OF SEQUENT COMMON STOCK PURSUANT TO THE MERGER AGREEMENT FROM
A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION. IT DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF SEQUENT COMMON STOCK AS TO HOW TO VOTE AT THE SEQUENT SPECIAL MEETING.
THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS DOCUMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. WE
ENCOURAGE YOU TO READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY.
14
<PAGE>
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
business and financial information of Sequent,
- reviewed certain internal financial statements and other financial and
operating data concerning Sequent prepared by the management of Sequent,
- analyzed certain financial projections prepared by the management of
Sequent,
- discussed the past and current operations and financial condition and the
prospects of Sequent, including information relating to certain strategic,
financial and operational benefits anticipated from the merger, with
senior executives of Sequent,
- reviewed the reported prices and trading activity of Sequent common stock,
- compared the financial performance of Sequent and the prices and trading
activity of Sequent common stock with that of certain other
publicly-traded companies comparable to Sequent and their securities,
- reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions,
- participated in discussions and negotiations among representatives of
Sequent and IBM,
- reviewed drafts of the merger agreement and certain related documents, and
- performed such other analyses and considered such other factors Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information supplied or otherwise made
available to it by Sequent for the purposes of its opinion. With respect to the
financial projections, Morgan Stanley assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Sequent. In addition, Morgan Stanley assumed
that the merger will be completed in accordance with the terms set forth in the
merger agreement. Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of Sequent, nor was Morgan Stanley
furnished with any such appraisals. Morgan Stanley's opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to it as of, the date of its opinion.
The following is a summary of the material financial valuation analyses
performed by Morgan Stanley in connection with rendering its opinion to the
Sequent board of directors on July 11, 1999. The summary includes information
presented in tabular format. In order to understand fully the financial analyses
used by Morgan Stanley, the tables must be read together with the applicable
text. The tables alone do not constitute a complete description of the financial
analyses.
COMPARATIVE STOCK PRICE PERFORMANCE. Morgan Stanley reviewed the stock
price performance of Sequent during the period from July 9, 1998 to July 9, 1999
and compared such performance with the means of the following groups of
companies during the same period.
<TABLE>
<CAPTION>
COMPANIES STOCK PRICE PERFORMANCE
- ---------------------------------------------------------------------- -------------------------
<S> <C>
Sequent............................................................... 49%
Large Capitalization Hardware Companies............................... 97%
Small Capitalization Hardware Companies............................... 6%
</TABLE>
15
<PAGE>
These groups include the following companies:
<TABLE>
<CAPTION>
LARGE CAPITALIZATION HARDWARE COMPANIES SMALL CAPITALIZATION HARDWARE COMPANIES
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Compaq Computer Corporation Data General Corporation
Dell Computer Corporation Silicon Graphics, Inc.
EMC Corporation Storage Technology Corporation
Hewlett-Packard Company
Sun Microsystems, Inc.
</TABLE>
Morgan Stanley observed that the market price of Sequent common stock during
the period from July 9, 1998 to July 9, 1999 increased 49% compared with an
increase of 97% for the Large Capitalization Hardware Companies and an increase
of 6% for the Small Capitalization Hardware Companies during the period from
July 9, 1998 to July 9, 1999.
PEER GROUP COMPARISON. Morgan Stanley compared certain financial
information of Sequent with publicly available information for the Large
Capitalization Hardware Companies and the Small Capitalization Hardware
Companies.
For this analysis, Morgan Stanley examined median estimates from securities
research analysts, where appropriate. The following table presents, as of July
9, 1999, the median for these groups of the following statistics:
- the ratio of stock price to calendar year 2000 estimated earnings per
share (EPS),
- the ratio of aggregate value, defined as market capitalization plus total
debt less cash and cash equivalents, to:
1. calendar year 1999 revenue, and
2. calendar year 2000 revenue, and
- the ratio of the ratio of price to calendar year 2000 estimated EPS to
five year projected EPS growth rates
<TABLE>
<CAPTION>
AGGREGATE VALUE TO CY 2000E
------------------------------------ P/E TO 5 YR
CY 2000E CY 1999E CY 2000E PROJECTED EPS
COMPANY P/E REVENUES REVENUES GROWTH RATE
- ------------------------------------------------------- ----------- --------------------- ------------- -----------------
<S> <C> <C> <C> <C>
Sequent................................................ 22.6x 0.8x 0.7x 1.5x
Large Capitalization
Hardware Companies
Median............................................... 39.5 4.3 3.2 1.5
Small Capitalization
Hardware Companies
Median............................................... 33.1 0.8 0.7 2.5
</TABLE>
The analyses reflected in the table above show that as of July 9, 1999:
- Sequent's common stock price was 22.6 times estimated calendar year 2000
EPS, as compared to the comparable ratios for the Large Capitalization
Hardware Companies and the Small Capitalization Hardware Companies of 39.5
and 33.1, respectively.
- Sequent's aggregate value was 0.8 times estimated calendar year 1999
revenue, as compared to the comparable ratios for the Large Capitalization
Hardware Companies and the Small Capitalization Hardware Companies of 4.3
and 0.8, respectively.
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<PAGE>
- Sequent's aggregate value was 0.7 times estimated calendar year 2000
revenue, as compared to the comparable ratios for the Large Capitalization
Hardware Companies and the Small Capitalization Hardware Companies of 3.2
and 0.7, respectively.
- Sequent's ratio of common stock price to calendar year 2000 EPS was 1.5
times estimated projected 5 year EPS growth rate, as compared to the
comparable ratios for the Large Capitalization Hardware Companies and the
Small Capitalization Hardware Companies of 1.5 and 2.5, respectively.
No company in this peer group comparison analysis is identical to Sequent.
In evaluating the peer groups, Morgan Stanley made judgments and assumptions
with regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Sequent, such as the impact of competition on the businesses of Sequent and the
industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Sequent or the industry or in
the financial markets in general. Mathematical analysis (such as determining the
mean or median) is not in itself a meaningful method of using peer group data.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. As part of its analysis,
Morgan Stanley reviewed the following transactions, referred to in this section
as the Selected Precedent Transactions.
<TABLE>
<CAPTION>
SELECTED PRECEDENT TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ACQUISITION OF BY
- -------------------------------------------------------- --------------------------------------------------------
Teradata Corporation AT&T Corp.
Cray Research, Inc. Silicon Graphics, Inc.
AST Research, Inc. Samsung Electronics Co., Ltd.
Advanced Logic, Inc. Gateway 2000, Inc.
Tandem Computers Incorporated Compaq Computer Corporation
Amdahl Corporation Fujitsu Limited
Digital Equipment Corporation Compaq Computer Corporation
</TABLE>
Morgan Stanley compared the publicly available statistics for the Selected
Precedent Transactions listed above to the relevant financial statistics for the
merger based on the merger consideration to be received by holders of shares of
Sequent's common stock. The following table presents the mean for the merger and
the Selected Precedent Transactions and the Sequent/IBM merger of the following
statistics:
- the ratio for the acquired company of aggregate enterprise value, to the
last 12 months of revenue,
- the merger consideration paid in such transaction to estimated next 12
months EPS, and
- premium to stock price one day and one month before the merger. Due to
published rumors of a potential transaction between IBM and Sequent, the
price for Sequent used to analyze the one day premium was the price as of
June 16, 1999, a date prior to published rumors regarding a potential
transaction.
<TABLE>
<CAPTION>
AGGREGATE VALUE TO 1 MONTH PRIOR
LAST 12 MONTHS MERGER CONSIDERATION TO 1 DAY PRIOR STOCK STOCK PRICE
TRANSACTIONS REVENUE NEXT 12 MONTHS EPS PRICE PREMIUM PREMIUM
- ------------------------------------------ --------------------- ------------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Sequent/IBM Merger........................ 0.9x 28.3x 47.7% 53.2%
Selected Precedent Transactions........... 1.0 17.7 30.1 49.5
</TABLE>
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<PAGE>
The analysis of the Selected Precedent Transactions showed:
- a mean multiple for the acquired company of enterprise value to latest
twelve months' revenue of 1.0 times,
- a mean multiple of merger consideration to next twelve months' earnings,
based on estimates from securities research analysts, of 17.7 times,
- a mean premium to the stock price one day before commencement of the
transactions of 30.1%, and
- a mean premium to the stock price one month before commencement of the
transactions of 49.5%.
Based on the merger consideration to be received by the holders of shares of
Sequent common stock in the merger, assuming Sequent's closing common stock
price as of June 9, 1999 and June 16, 1999, these statistics compared to:
- a multiple of Sequent's enterprise value to latest twelve months' revenue
of 0.9 times,
- a multiple of Sequent's merger consideration to next twelve months'
earnings, as estimated by Sequent's management, of 28.3 times,
- a premium to Sequent's June 16, 1999 price of 47.7%, and
- a premium to Sequent's June 9, 1999 price of 53.2%.
No transaction utilized in the Selected Precedent Transactions analysis as a
comparison is identical to Sequent. In evaluating the Selected Precedent
Transactions, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Sequent,
such as the impact of competition on the business of Sequent and the industries
in which it operates generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of Sequent or the
industries in which it operates or in the financial markets in general.
Mathematical analysis (such as determining the mean) is not in itself a
meaningful method of using precedent transactions data.
DISCOUNTED EQUITY VALUE. Morgan Stanley performed an analysis of the
present value per share of the implied value of Sequent on a stand-alone basis
based on Sequent's future equity value. Morgan Stanley based its analysis on
both Sequent management and implied equity research analyst estimates of
financial performance through calendar year 2002. Using a discount rate of
15.6%, Morgan Stanley calculated the net present value per share of Sequent
based on a range of multiples of estimated calendar year 2001 earnings and
estimated calendar year 2002 earnings. The following table presents the implied
Sequent value per share based upon this analysis:
<TABLE>
<CAPTION>
P/E IMPLIED VALUE
MULTIPLE RANGE PER SEQUENT SHARE
-------------- -----------------
<S> <C> <C>
Management Estimates....................................... 14.0x-21.0x $13.78-$20.99
Research Analyst Estimates................................. 14.0-21.0 10.66- 16.08
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis of Sequent to determine a range of present values for Sequent
based on the financial projections prepared by the management of Sequent. Morgan
Stanley calculated unlevered free cash flow as the after-tax operating earnings
of Sequent excluding any interest income and interest expense, plus depreciation
and amortization, plus deferred taxes, plus or minus net changes in non-cash
working capital, minus capital expenditures. Morgan Stanley calculated terminal
values by applying a range of multiples to earnings in fiscal year 2006 from
14.0 to 21.0 times. Morgan Stanley then discounted the unlevered free
18
<PAGE>
cash flows and terminal values to present values using a discount rate of 15.0%.
Based on this analysis and the assumptions set forth, Morgan Stanley calculated
per share equity value estimates of Sequent ranging from approximately $20 to
$27, excluding any potential operational benefits to be realized from the
merger.
PRO FORMA MERGER ANALYSIS. Morgan Stanley analyzed the pro forma impact of
the merger on IBM's earnings per share for calendar years 1999, 2000, 2001 and
2002. Such analysis was based on earnings projections:
- by Sequent management for Sequent both excluding potential operational
benefits to be realized from the merger ("Management Case") and including
potential operational benefits to be realized from the merger provided by
Sequent ("Management Case with Synergies"),
- by securities research analysts for Sequent ("Analyst Case"), and
- by securities research analysts for IBM in all cases.
Morgan Stanley analyzed the pro forma impact of the merger on IBM's earnings
per share for calendar years 1999, 2000, 2001 and 2002. Morgan Stanley observed
that the merger would result in earnings per share dilution of -0.2%, -0.3%,
- -0.1% and 0.0% for IBM in calendar years 1999, 2000, 2001 and 2002, respectively
under the Management Case, earnings per share dilution of -0.2% for IBM in
calendar year 1999 and earnings per share accretion of 0.7%, 0.9% and 1.1% for
IBM in calendar years 2000, 2001 and 2002, respectively under the Management
Case with Synergies and earnings per share dilution of -0.2%, -0.4%, -0.3% and
- -0.2% for IBM in calendar years 1999, 2000, 2001 and 2002, respectively under
the Analyst Case.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Sequent. In performing its analyses,
Morgan Stanley made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Sequent. Any estimates contained in Morgan Stanley's
analyses are not necessarily indicative of future results or actual values,
which may be significantly more or less favorable than those suggested by such
estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the merger consideration to be received by holders
of Sequent common stock pursuant to the merger agreement from a financial point
of view to holders of Sequent common stock and were conducted in connection with
the delivery of the Morgan Stanley opinion. The analyses do not purport to be
appraisals or to reflect the prices at which Sequent might actually be sold.
The merger consideration to be received by the holders of Sequent common
stock pursuant to the merger agreement was determined through arm's-length
negotiations between Sequent and IBM and was approved by the Sequent board of
directors. Morgan Stanley provided advice to Sequent during these negotiations;
however, Morgan Stanley did not recommend any specific consideration to Sequent
or that any specific consideration constituted the only appropriate
consideration for the merger.
In addition, Morgan Stanley's opinion and presentation to the Sequent board
of directors was one of many factors taken into consideration by Sequent's board
of directors in making its decision to adopt the plan of merger and to approve
the merger. See "The Merger--Reasons for the merger."
19
<PAGE>
Consequently, the Morgan Stanley analyses as described above should not be
viewed as determinative of the opinion of the Sequent board of directors with
respect to the consideration or of whether the Sequent board of directors would
have been willing to agree to a different consideration.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate, estate and other purposes. In the past, Morgan
Stanley and its affiliates have provided financing and financial advisory
services for Sequent and IBM and have received fees for rendering these
services. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, trade or otherwise effect transactions, for its own account or for
the account of customers, in the equity securities of Sequent or IBM.
Pursuant to the engagement letter, Morgan Stanley provided financial
advisory services and a financial fairness opinion in connection with the
merger. For these services, Sequent has agreed to pay Morgan Stanley a
transaction fee of $7,500,000 when the merger occurs. If the merger does not
occur, Sequent will pay Morgan Stanley an advisory fee of approximately
$300,000. In addition, Sequent has agreed to reimburse Morgan Stanley for its
expenses related to the engagement and to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, arising out of Morgan Stanley's engagement.
INTERESTS OF MEMBERS OF THE SEQUENT BOARD OF DIRECTORS AND MANAGEMENT IN THE
MERGER
When you consider the recommendations of our board of directors, you should
be aware that the officers and directors of Sequent may have interests in the
merger that are different from, or in addition to, your interests. These
interests may create potential conflicts of interest. Our board of directors was
aware of these interests when it approved the merger.
CHANGE OF CONTROL AGREEMENTS. Sequent has entered into change of control
agreements with 14 officers (including Karl C. Powell, Jr. and John McAdam, who
are directors of Sequent). If an officer is involuntarily terminated within 18
months after shareholder approval of the merger, the officer will receive a
severance payment equal to 12 months (for 11 officers) or 24 months (for three
officers) of base salary, an "on-target bonus" and continued health insurance
for 12 months. "On target bonus" means the bonus amount the officer would
receive if all requirements of the officer's bonus plan were met. Messrs.
Powell, McAdam and Gregg would also receive an additional amount to reimburse
each of them for any golden parachute excise taxes incurred in connection with
any change of control severance payments.
The benefits described above are also provided under the change of control
agreements if the officers voluntarily terminate their employment with Sequent
for "good reason." Voluntary termination for good reason may result from any one
of the following events occurring within 18 months after shareholder approval of
the merger:
- a material reduction of the officer's duties, title or responsibilities
after the merger, as described in the agreement,
- reduction in the officer's base salary,
- reduction in the kind or types of benefits provided to the officer that
results in a material reduction in the officer's overall benefits package,
or
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- relocation of the officer to a location more than 25 miles from the
officer's present work location.
In addition, if Mr. Powell leaves Sequent voluntarily for any reason other
than good reason within 18 months following the merger, he will receive a
severance payment equal to 12 months of his base salary plus an "on-target
bonus."
ACCELERATION OF UNVESTED OPTIONS. Each outstanding option to purchase
shares of Sequent common stock will, to the extent not previously vested, become
fully vested at the time the Sequent shareholders approve the merger, even if
the merger is not completed. Under the merger agreement, each option to purchase
shares of Sequent common stock will be converted into an option to purchase
shares of IBM common stock on their then existing terms except that the option
price and the number of shares of IBM common stock subject to the option will be
adjusted based on the merger consideration as described under "The Merger
Agreement--Treatment of stock options." Alternatively, each holder of options
may elect to convert its options into the right to receive cash as described
under "The Merger Agreement--Treatment of stock options."
The following table indicates unvested options held by certain executive
officers and directors that will accelerate and be fully vested following
shareholder approval of the merger:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER APPROXIMATE SPREAD
OF SHARES SUBJECT VALUE OF
TO UNVESTED OPTIONS ACCELERATED
TO BE ACCELERATED OPTIONS(1)
------------------- -------------------
<S> <C> <C>
Karl C. Powell, Jr.(2).................................................. 426,875 $ 2,547,781
John McAdam(2).......................................................... 155,000 $ 949,350
Robert S. Gregg(2)...................................................... 17,750 $ 64,275
5 Non-Employee Directors as a group..................................... 111,214 $ 712,126
</TABLE>
- ------------------------
(1) The amounts in this column have been determined by multiplying (a) the
number of shares of Sequent common stock subject to the unvested options
assuming a merger closing date of September 30, 1999 with exercise prices
below $18 per share by (b) the excess of $18 over the exercise price of each
option.
(2) In the merger, forfeiture restrictions will lapse with respect to 34,000
shares of common stock of DP Applications, Inc., an affiliate of Sequent,
held by each of Messrs. Powell, McAdam and Gregg.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Following the merger, the
surviving corporation of the merger will indemnify each present and former
director and officer of Sequent or any of its subsidiaries from liabilities for
acts or omissions occurring at or before the completion of the merger to the
fullest extent provided under that entities' existing charter documents, bylaws
and indemnification agreements.
DIRECTORS' AND OFFICERS' INSURANCE. For six years after the completion of
the merger, IBM will maintain a policy of directors' and officers' liability
insurance for acts and omissions occurring before the merger with coverage no
less favorable than Sequent's existing directors' and officers' liability
insurance coverage. If the existing directors' and officers' liability insurance
expires or terminates, or if the annual premium is more than 150% of the
annualized premium paid in 1998, IBM must obtain directors' and officers'
liability insurance in an amount and scope as it can obtain for the remainder of
the six-year period for an annual premium not in excess of 150% of the 1998
premium.
ACCOUNTING TREATMENT
The merger will be treated as a purchase for accounting purposes.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
This section discusses the material United States federal income tax
consequences of the merger to Sequent shareholders whose shares of Sequent
common stock are surrendered in the merger in exchange for the right to receive
cash consideration of $18 per share. The discussion below applies only to
Sequent shareholders that hold Sequent common stock as capital assets at the
time of the merger, and the discussion may not apply to shareholders that are
subject to special tax rules, such as financial institutions, insurance
companies, dealers in securities, persons that mark-to-market their securities,
persons that hold common stock as part of a "straddle," "hedge" or "synthetic
security transaction" (including a "conversion" transaction), persons with a
"functional currency" other than the U.S. dollar, retirement plans and
tax-exempt organizations, shareholders who acquired Sequent common stock
pursuant to the exercise of stock options, pursuant to participation in an
employee stock purchase plan or otherwise as compensation, or shareholders that
are nonresident alien individuals, foreign corporations, foreign partnerships,
foreign trusts or foreign estates. The discussion below is based upon federal
income tax laws as now in effect and interpreted and does not take into account
possible changes in these tax laws or interpretations, any of which may be
applied retroactively. The discussion does not include any description of the
tax laws of any state, local or foreign government that may be applicable to
Sequent shareholders.
THIS SECTION DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY BE RELEVANT TO A PARTICULAR SEQUENT SHAREHOLDER IN LIGHT OF THE
SHAREHOLDER'S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH
SHAREHOLDER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS OR CHANGES TO THOSE LAWS.
For federal income tax purposes, a Sequent shareholder generally will
recognize capital gain or capital loss equal to the difference between the cash
received by the shareholder pursuant to the merger and the shareholder's
adjusted tax basis in the shares of Sequent common stock surrendered pursuant to
the merger. If at the time of the merger a noncorporate shareholder's holding
period for the shares of Sequent common stock is more than one year, any gain
recognized generally will be subject to federal income tax at a maximum rate of
20%. If a shareholder's holding period for the shares of common stock is one
year or less at the time of the merger, any gain will be subject to federal
income tax at the same rate as ordinary income. Any capital loss generally will
be applied to offset the shareholder's capital gains, if any, from other
transactions. For noncorporate shareholders, any amount of capital loss in
excess of capital gain in any year generally is deductible against ordinary
income only to the extent of $3,000, but any net capital loss in excess of
$3,000 may be carried forward to subsequent taxable years.
For corporations, capital gain is taxed at the same rate as ordinary income,
and capital loss in excess of capital gain is not deductible. Corporations,
however, generally may carry back capital losses up to three taxable years and
carry forward capital losses up to five taxable years.
Consideration received by Sequent shareholders in the merger may be subject
to backup withholding at a 31% rate. Backup withholding generally will apply
only if the shareholder fails to furnish a correct social security number or
other taxpayer identification number, or otherwise fails to comply with
applicable backup withholding rules and certification requirements. Corporations
generally are exempt from backup withholding. Any amounts withheld under the
backup withholding rules will be allowed as a credit against the shareholder's
federal income tax liability and may entitle the shareholder to a refund,
provided the shareholder furnishes specified required information to the
Internal Revenue Service.
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REGULATORY MATTERS
Under the Hart-Scott-Rodino Act, the Antitrust Division of the U.S.
Department of Justice and the U.S. Federal Trade Commission must review
transactions such as the merger. The merger will also be reviewed by state
antitrust authorities and is subject to premerger notification filings and
applicable waiting periods in other countries. The government agencies
conducting these reviews determine whether the merger complies with antitrust
laws. The Hart-Scott-Rodino Act requires Sequent and IBM to notify these federal
agencies of the merger. Sequent and IBM both filed the notification reports with
the Antitrust Division and the Federal Trade Commission and the waiting period
with respect to these filings expired on August 20, 1999.
At any time before or after the merger becomes effective, the Antitrust
Division, the Federal Trade Commission, state antitrust authorities or a private
person or entity could seek to enjoin the merger or to cause Sequent or IBM to
divest various assets. Under the merger agreement, the obligation of Sequent and
IBM to complete the merger is conditioned on
- the termination or expiration of the waiting periods, and
- the absence of any injunction against the merger on antitrust or other
grounds.
Neither Sequent or IBM are bound under the merger agreement, however, to
- agree to divest or hold separate any assets or portion of the business of
Sequent or IBM, or
- litigate any proceeding that
-- challenges or seeks to restrain the completion of the merger,
-- seeks to limit in any material respect the ownership or operation by
Sequent or IBM of a material portion of its businesses and assets, or
-- seeks to prohibit IBM from controlling in any material respect a
substantial portion of the business or operations of Sequent.
A challenge to the merger could be made and, if such a challenge is made,
Sequent and IBM may not prevail.
Other than the matters described in this document, we are not aware of any
significant government or regulatory approvals that we need to obtain, or
waiting periods with which we need to comply, to complete the merger. If we
discover that other approvals or waiting periods are required, we will seek to
obtain or comply with them. If any approval or action is needed, however, we may
not be able to obtain it. Even if we could obtain the approval, conditions may
be placed on it that would cause us to abandon the merger.
DISSENTERS' RIGHTS
Under Oregon law dissenters' rights are not available in a merger to holders
of any shares of stock which, like the Sequent common stock, are listed for
quotation on the Nasdaq National Market. Accordingly, Sequent shareholders have
no dissenters' rights in connection with the merger.
THE MERGER AGREEMENT
This is a summary of the material provisions of the merger agreement, a copy
of which is attached as APPENDIX A to this proxy statement. You should refer to
the full text of the merger agreement for details of the merger and the terms
and conditions of the merger agreement.
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THE MERGER
When the merger occurs, Pathfinder Acquisition Corp., a wholly owned
subsidiary of IBM, will be merged with and into Sequent. Sequent will survive
the merger as a wholly owned subsidiary of IBM.
In the merger each share of Sequent common stock outstanding immediately
before the merger will be converted into the right to receive $18 in cash,
without interest. At that time, all shares of Sequent common stock will be
canceled and retired. Each holder of a certificate representing any shares of
Sequent common stock will no longer have any rights with respect to the shares
of Sequent common stock, except for the right to receive the merger
consideration. Each share of Sequent common stock held by Sequent, as treasury
stock, IBM or Pathfinder Acquisition Corp. at the time of the merger will be
canceled and retired without any payment.
EFFECTIVE TIME OF THE MERGER
The completion of the merger will take place on the second business day
following the date when the last of the conditions to the merger is fulfilled or
waived, or at any other time and date to which Sequent and IBM mutually agree.
On the closing of the merger, Sequent and IBM will cause articles of merger,
which will include the plan of merger, to be filed with the Secretary of State
of the state of Oregon. At that time, or at any later time that is set forth in
the articles of merger, the merger will become effective.
TREATMENT OF STOCK OPTIONS
Under the terms of Sequent's stock option plans, each outstanding unvested
option to purchase shares of Sequent common stock will become fully vested at
the time the Sequent shareholders approve the plan of merger.
The merger agreement provides that upon completion of the merger, each
option to purchase Sequent common stock will be converted into an option to
acquire shares of IBM common stock on the then existing terms, except that (a)
the number of shares of IBM common stock subject to the option will equal the
number of shares of Sequent common stock subject to the option multiplied by a
fraction, the numerator of which is $18 and the denominator of which is the
average closing price of IBM common stock on the New York Stock Exchange
Composite Transactions Tape on the 10 trading days immediately preceding the
merger and (b) the option price will equal the option price for the shares of
Sequent common stock divided by the fraction described in clause (a) above.
Instead of exchanging options to purchase shares of Sequent common stock for
options to purchase shares of IBM common stock
- each holder of an option issued under Sequent's 1989 Stock Incentive Plan
or 1995 Stock Incentive Plan may, in accordance with the terms of those
stock option plans, for a period of 30 days after the shareholders approve
the merger, elect to require Sequent to purchase those stock options at a
price equal to the product of the number of shares of Sequent common stock
subject to the option and the amount by which the highest of (a) the
highest closing sale price of Sequent common stock during the preceding 60
days, (b) the highest price shown in any Schedule 13D filed by a
shareholder holding at least 20% of Sequent's common stock as being paid
during the 60 days preceding the date of the Schedule 13D and (c) the
merger consideration exceeds the option price, and
- alternatively, instead of calculating the payment as described in the
preceding paragraph, Sequent may elect to pay holders of incentive stock
options issued under the 1989 Stock Incentive Plan and 1995 Stock
Incentive Plan a purchase price equal to the product of (a) the excess, if
any, of the fair market value of a share of common stock over the option
price and
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<PAGE>
(b) the number of shares of common stock covered by the incentive stock
options that the option holder elects to have Sequent purchase, and
- each holder of a stock option issued under the 1987 Employee Stock Option
Plan, the 1996 Stock Option Plan or the 1997 Stock Option Plan may elect
to receive a cash payment immediately following the merger in cancellation
of their stock options in an amount equal to the difference between (a)
the product of (1) the number of shares of Sequent common stock subject to
the stock option and (2) $18, and (b) the product of (1) the number of
shares of Sequent common stock subject to the stock options and (2) the
per share exercise price of the options.
If the Sequent shareholders approve the merger, all outstanding options
issued under the 1989 Stock Incentive Plans, the 1995 Stock Incentive Plan and
the 1997 Stock Option Plan will vest and holders of options under the 1989 and
1995 Plans will have the right to require Sequent to purchase those options
whether or not the merger is completed.
PAYMENT FOR SHARES
Before the merger, IBM will appoint a bank or trust company that is
reasonably acceptable to Sequent to act as paying agent for the payment of the
merger consideration. IBM will make available to the paying agent funds
necessary to make such payments.
After the merger, IBM or the paying agent will mail a letter of transmittal,
which will include instructions for the delivery of Sequent stock certificates
to the paying agent, to each person who held shares of Sequent common stock at
the time of the merger. The holder should use this letter of transmittal in
sending Sequent stock certificates to the paying agent. After surrendering to
the paying agent for cancellation a Sequent stock certificate together with a
properly completed letter of transmittal, the holder of such Sequent stock
certificate will be entitled to receive a cash payment in an amount equal to the
product of the number of shares represented by such stock certificate and the
merger consideration of $18. Each surrendered share will be canceled.
If a transfer of ownership of Sequent common stock is not registered in
Sequent's stock transfer books, payment of the merger consideration may be made
to a person other than the person in whose name the certificate so surrendered
is registered if:
- the certificate is properly endorsed or otherwise in proper form for
transfer, and
- the person requesting the payment pays any transfer or other taxes
resulting from the payment of the merger consideration to a person other
than the registered holder of that certificate or establishes to the
surviving corporation that the taxes have been paid or are not applicable.
SEQUENT SHAREHOLDERS SHOULD NOT SEND IN THEIR SEQUENT STOCK CERTIFICATES
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
All cash paid upon the surrender of certificates of Sequent common stock in
accordance with the merger agreement will be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Sequent common stock.
After the merger, no transfers of shares of Sequent common stock that were
outstanding immediately before the merger will be made on the transfer books of
Sequent.
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If your Sequent stock certificate has been lost, stolen or destroyed, you
will be entitled to obtain payment only by signing an affidavit and, if required
by IBM, posting a bond in an amount sufficient to protect IBM against claims
related to your Sequent stock certificate.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by us
relating to
- our corporate organization and similar corporate matters,
- our subsidiaries,
- our capital structure,
- authorization, execution, delivery, performance and enforceability of, and
required consents, approvals and authorizations relating to, the merger
agreement and related matters,
- the accuracy of our reports and financial statements filed with the SEC,
- the accuracy of this proxy statement,
- the absence of any violation of, or conflict with, our articles of
incorporation or bylaws or any contract to which we are a party as a
result of entering into the merger agreement,
- litigation in which we are involved,
- our contracts,
- our compliance with applicable laws and charter provisions,
- the absence of changes in our employee benefit plans and employment
agreements,
- our labor relations,
- the absence of material changes to our business or material events since
the end of our most recent fiscal year,
- our compliance with environmental laws,
- our year 2000 compliance,
- our compliance with the Employment Retirement Income Security Act of 1974,
- tax matters,
- title to properties we own and lease,
- intellectual property we own and lease,
- shareholder voting requirements,
- satisfaction of state takeover statutes and business combination charter
provisions,
- fees with respect to the merger,
- the delivery of a fairness opinion by our financial advisor,
- the inapplicability of our shareholder rights agreement to the merger, and
- the organization, ownership and contracts of DP Applications, Inc., an
affiliate of Sequent.
The merger agreement also contains customary representations and warranties
by IBM relating to
- corporate organization and similar corporate matters,
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- authorization, execution, delivery, performance and enforceability of, and
required consents, approvals and authorizations relating to, the merger
agreement and related matters,
- information IBM supplied for this proxy statement,
- the interim operations of Pathfinder Acquisition Corp., and
- resources to pay the total merger consideration.
COVENANTS
We have agreed that during the period from the date of the merger agreement
until the closing of the merger, we will, and will cause our subsidiaries to,
- carry on our respective businesses in the ordinary course of business
consistent with past practice,
- use commercially reasonable efforts to comply with all applicable laws,
rules and regulations,
- maintain our respective assets and our respective relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with us, and
- provide IBM and its advisors reasonable access to the properties, records
and advisors of Sequent as well as all information about Sequent's
business that IBM reasonably requests.
We have also agreed that during the period from the date of the merger
agreement until the closing of the merger, we will not, and will not allow our
subsidiaries to
- take or omit to take any action that would cause any representation,
warranty or covenant in the merger agreement to be untrue or unsatisfied,
- sell, lease, license, dispose of or encumber any of our assets other than
inventory or used equipment in the ordinary course of our business
consistent with past practice,
- redeem, purchase or acquire any of our capital stock or other securities,
- declare or pay any dividend or other distribution, except that our wholly
owned subsidiaries may pay dividends,
- issue or sell any capital stock or rights to acquire capital stock, other
than (a) specified issuances of stock options in connection with the
hiring or promotion of employees or as part of a compensation package
granted to counter an offer of employment by a third party, each in the
ordinary course of business consistent with past practice, or (b) granting
of other rights arising under our employee stock purchase plan, in the
ordinary course of business consistent with past practice or (c) issuances
of common stock upon exercise of outstanding stock options and warrants
and under the employee stock purchase plan,
- amend our charter documents or permit DP Applications, Inc. to amend its
charter documents,
- prepurchase, prepay, incur or guarantee additional debt, except for
short-term borrowing in the ordinary course of our business consistent
with past practice,
- enter into any contract with identified parties or any material contract
other than those specified,
- make any tax election,
- enter into any new agreements or modify existing agreements with our
officers or employees to increase compensation or benefits,
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- split, combine or reclassify our outstanding common stock or change our
authorized capitalization,
- enter into any transaction or commitment or modify or terminate any
contract in a manner materially adverse to us,
- authorize capital expenditures inconsistent with our capital expenditure
budget for fiscal 1999,
- pay, discharge, settle or satisfy any claims other than in the ordinary
course of business consistent with past practice or except as reserved
against in our most recent audited financial statements, or waive or fail
to enforce any confidentiality, standstill or similar agreement,
- acquire any business or assets other than inventory, raw materials and
other specified assets in the ordinary course of business consistent with
past practice, or
- make any loans or capital contributions to, or investment in, any person
other than our wholly owned subsidiaries.
IBM has agreed, on behalf of it and its subsidiaries, to take no action that
would cause any of its representations, warranties or conditions in the merger
agreement to be untrue or unsatisfied.
NO SOLICITATION OF TRANSACTIONS
We have agreed not to, and not to permit or authorize our subsidiaries or
any of our or our subsidiaries' directors, officers or employees or
representatives to, solicit, initiate or encourage, or take any action to
knowingly facilitate, any takeover proposal or enter into, continue or otherwise
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, any takeover proposal. We and our board
may, however, before the date of the special meeting
- provide information to anyone who has made an unsolicited superior
proposal pursuant to a customary confidentiality agreement that contains
terms that are no less favorable than the terms of the confidentiality
agreement between Sequent and IBM, and
- engage in any discussions or negotiations with anyone who has made an
unsolicited superior proposal,
in each case only if our board determines in good faith, after consultation with
outside counsel, that it is required to do so in order to comply with its
fiduciary duties to our shareholders under applicable law.
In addition, we have agreed that neither our board of directors nor any of
its committees will
- withdraw or modify, in a manner adverse to IBM, its adoption or
recommendation of the merger agreement and the merger or publicly propose
to do so,
- adopt, approve or recommend any takeover proposal or publicly propose to
do so, or
- cause or agree to cause Sequent to enter into any letter of intent or
other agreement constituting or related to, or that is intended to or
reasonably likely to lead to, a takeover proposal.
Our board may, however, in response to an unsolicited superior proposal,
terminate the merger agreement before the date of the special meeting if
- it determines in good faith, after consultation with outside counsel, that
the action is required to do so to comply with its fiduciary duties to our
shareholders under applicable law,
- it delivers written notice to IBM, within the time required by the merger
agreement, advising IBM that it has received an unsolicited superior
proposal, including the terms, conditions and
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identity of the person making the superior proposal, and that, subject to
any action IBM may take to match the superior proposal, it intends to
accept the superior proposal,
- simultaneously with the termination, it causes Sequent to enter into a
definitive agreement containing the terms of the superior proposal, and
- Sequent has previously paid to IBM the $25 million termination fee.
Nothing described above will limit our ability to take actions to comply
with specified rules under the Securities Exchange Act of 1934 and provide
disclosure to Sequent's shareholders as otherwise required by applicable law.
We have agreed to notify IBM promptly of any takeover proposal we may
receive or any inquiry we think may lead to a takeover proposal, including the
terms and conditions of any proposal, and to keep IBM informed of all
developments relating to any takeover proposal.
Under the merger agreement the term takeover proposal means any inquiry,
proposal or offer that relates to or is likely to lead to
- any direct or indirect acquisition or purchase of any business that equals
20% or more of the combined revenue, operating income, or assets of
Sequent and its subsidiaries, or 20% or more of the outstanding common
stock of Sequent or any class of capital stock of its subsidiaries,
- any tender or exchange offer that, if successful, would result in any
person beneficially owning 20% or more of Sequent's common stock, or
- a merger, recapitalization or similar transaction involving Sequent or any
of its subsidiaries.
Under the merger agreement the term superior proposal means any good faith
proposal by a third party which would result in the third party obtaining more
than 50% of Sequent's common stock or substantially all of the combined assets
of Sequent and its subsidiaries,
- for consideration in cash and/or securities that the Sequent board of
directors determines to have a higher value than the merger consideration,
and
- which the Sequent board of directors determines to be more favorable to
Sequent's shareholders than the merger.
In concluding that a proposal is a superior proposal, the Sequent board of
directors must consider any counter-proposals that IBM offers in the manner
required by the merger agreement.
REASONABLE BEST EFFORTS
Except as otherwise limited by the merger agreement, Sequent and IBM have
each agreed to use its reasonable best efforts to take actions necessary to
complete the merger, including
- satisfying the conditions to the merger,
- obtaining all necessary consents and approvals, and
- taking steps to avoid any law or ruling preventing the merger.
Neither Sequent or IBM are bound under the merger agreement, however, to
- agree to divest or hold separate any assets or portion of the business of
Sequent or IBM, or
- litigate any proceeding that
-- challenges or seeks to restrain the completion of the merger,
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-- seeks to limit in any material respect the ownership or operation by
Sequent or IBM of a material portion of its businesses and assets, or
-- seeks to prohibit IBM from controlling in any material respect a
substantial portion of the business or operations of Sequent.
BENEFIT PLANS
The surviving corporation will honor all obligations under Sequent
employment agreements and benefit plans under their existing terms. The
surviving corporation is not prohibited from amending or terminating these
agreements and benefit plans in accordance with their terms and applicable law.
We have amended our Employee Stock Purchase Plan in accordance with the
merger agreement. We are limiting participants in the plan to those employees
participating on June 9, 1999. Those participants will not be able to increase
their payroll deductions or purchase elections from those in effect on June 9,
1999. No offering periods under the plan will commence after July 11, 1999. One
final purchase date using accumulated funds under the plan will occur on the
trading day before the completion of the merger. The final purchase will not be
entitled to special tax treatment normally applicable to the Employee Stock
Purchase Plan. Tax withholding will, therefore, apply to the final purchase in
accordance with the rules for unqualified stock options. After the final
purchase occurs, the Employee Stock Purchase Plan will terminate.
CONDITIONS TO THE PARTIES' OBLIGATIONS TO COMPLETE THE MERGER
IBM's and our obligations to complete the merger are subject to the
following conditions:
- approval of the merger by the holders of a majority of the outstanding
shares of Sequent common stock,
- expiration or termination of the waiting period under any applicable
competition, merger control, antitrust or similar law,
- no law or ruling exists that prevents the completion of the merger,
- the representations and warranties of the other party are true and correct
as of the date of the merger agreement and as of the merger closing date,
and the other party has performed and complied with all material
obligations and agreements required to be performed or complied with at or
before the merger closing date.
ADDITIONAL CONDITIONS TO OBLIGATION OF IBM
IBM's obligation to complete the merger is subject to the following
additional conditions:
- receipt of all approvals and authorizations from governmental entities
that are legally required, all other consents, approvals and
authorizations from governmental entities or third parties other than
those that would not have a materially adverse effect on Sequent and
certain specified consents, approvals and waivers,
- no outstanding warrants to purchase Sequent common stock exist (which will
occur ten days after the date the Sequent shareholders approve the merger
in accordance with the terms of the warrants), and
- no law or ruling and no proceeding brought by any governmental entity and
no proceeding that has a reasonable possibility of success brought by any
third party (other than those brought by third parties based on state law
fiduciary duty claims) exists that:
-- challenges or seeks to restrain the completion of the merger,
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-- seeks to limit in any material respect the ownership or operation by
Sequent or IBM of its businesses and assets, or
-- seeks to prohibit IBM from controlling in any material respect a
substantial portion of the business or operations of Sequent.
TERMINATION
The merger agreement may be terminated and the merger may be abandoned at
any time by
1. mutual consent of Sequent, IBM and Pathfinder Acquisition Corp.;
2. either Sequent or IBM if
- the merger is not completed by April 30, 2000,
- any law or ruling prohibiting the completion of the merger has become
final and cannot be appealed, or
- the holders of a majority of the outstanding shares of Sequent common
stock do not approve the merger at the special meeting;
3. Sequent if
- IBM has materially breached any representation, warranty, covenant or
agreement that is not cured within 30 days after notice from Sequent or
- before the special meeting of the shareholders
-- the Sequent board authorizes Sequent to enter into an agreement
concerning a superior proposal,
-- Sequent gives IBM at least five business days' notice of the terms
and conditions of, and its intention to accept, the superior
proposal (and at least two business days' notice of any amendment to
a material term of the superior proposal) and the proposal continues
to be a superior proposal at the end of such period taking into
account any changes to the merger agreement made by IBM in response
to the proposal,
-- simultaneously with the termination Sequent enters into a definitive
agreement containing the terms of the superior proposal, and
-- Sequent has previously paid to IBM the $25 million termination fee;
4. IBM if
- Sequent has materially breached any representation, warranty, covenant
or agreement that is not cured within 30 days after notice from IBM,
- Sequent fails to reaffirm its recommendation in favor of the merger
within ten business days following a request by IBM to do so after
Sequent has received a takeover proposal, provided that if Sequent has
given notice of its intention to accept a superior proposal as described
in the second reason in paragraph 3 above under "--Termination," IBM may
not terminate the merger agreement until the end of the notice period
described in that paragraph, or
- any law or ruling exists having the effect described in the third
condition under "--Additional conditions to obligation of IBM."
31
<PAGE>
TERMINATION FEES
Sequent has agreed to pay IBM a termination fee of $25 million if the merger
agreement is terminated under any of the following circumstances:
- before the special meeting,
-- a takeover proposal has been made known to Sequent or has been made
directly to the Sequent shareholders,
-- IBM or Sequent then terminates the merger agreement for the first or
third reason described in paragraph 2 above under "--Termination," and
-- within 12 months of the termination Sequent enters into an agreement
with respect to, or completes, a takeover proposal (except that for
purposes of this clause, the references to 20% in the definition of
"takeover proposal" are deemed to be references to 40%),
- IBM terminates the merger agreement for the second reason described in
paragraph 4 above under "--Termination" or
- Sequent terminates the merger agreement for the second reason described in
paragraph 3 above under "--Termination."
AMENDMENT AND WAIVER
The merger agreement may be modified or amended only by written agreement of
the parties. A party may waive its rights under the merger agreement only in
writing. Any such amendment or waiver may be made at any time before the
completion of the merger. After the Sequent shareholders approve the plan of
merger, however, no amendment or waiver that requires further approval of the
shareholders may be made without the further approval of the shareholders.
32
<PAGE>
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table shows common stock ownership on July 31, 1999 by (i)
each person who, to our knowledge, beneficially owns more than 5% of the common
stock, (ii) our Chief Executive Officer, (iii) our other four most highly
compensated executive officers at the end of our last fiscal year, and (iv) all
of our directors and executive officers as of July 31, 1999 as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES(1) PERCENT
- ------------------------------------------------------------------------------------------ ------------- -----------
<S> <C> <C>
Crabbe Huson Group Inc.................................................................... 2,566,500(2) 6.1%
121 S.W. Morrison, Suite 1400
Portland, OR 97204
The Capital Group Companies, Inc.......................................................... 2,540,000(3) 6.0%
333 South Hope St.
Los Angeles, CA 90071
Karl C. Powell, Jr........................................................................ 1,221,967(4) 2.8%
John McAdam............................................................................... 506,885(5) 1.2%
Barbara L. Gaffney........................................................................ 125,409(6) *
Robert S. Gregg........................................................................... 327,838(7) *
Peter W. O'Neill.......................................................................... 0(8) *
9 directors and executive officers as a group............................................. 2,598,385(9) 5.9%
</TABLE>
- ------------------------
* Less than 1%
(1) Shares are held directly with sole voting and dispositive power except as
otherwise indicated. Shares issuable pursuant to outstanding stock options
that are exercisable or become exercisable within 60 days of the date of
this table are considered outstanding for the purpose of calculating the
percentage of common stock owned by each listed person, but not for the
purpose of calculating the percentage of common stock owned by any other
person.
(2) Based solely on information provided as of December 31, 1998 in a Schedule
13G filed by the shareholder. The shareholder reports shared voting power
with respect to 2,321,600 shares and shared dispositive power with respect
to 2,566,500 shares.
(3) Based solely on information provided as of December 31, 1998 in a Schedule
13G filed by the shareholder. The shareholder reports sole dispositive power
with respect to 2,540,000 shares.
(4) Includes 112,000 shares held in trust for the benefit of Mr. Powell's
family, as to which Mr. Powell has shared voting and dispositive power, and
1,053,069 shares of Common stock subject to options that are exercisable or
become exercisable within 60 days. Mr. Powell also holds 100,000 shares of
Common stock of DP Applications, Inc., representing approximately 1% of the
equity of DP Applications, Inc. on a fully diluted basis.
(5) Includes 489,000 shares of Common stock subject to options that are
exercisable or become exercisable within 60 days. Mr. McAdam also holds
100,000 shares of Common stock of DP Applications, Inc., representing
approximately 1% of the equity of DP Applications, Inc. on a fully diluted
basis.
(6) Includes 122,898 shares of Common stock subject to options that are
exercisable or become exercisable within 60 days.
33
<PAGE>
(7) Includes 300,750 shares of Common stock subject to options that are
exercisable or become exercisable within 60 days. Mr. Gregg also holds
100,000 shares of Common stock of DP Applications, Inc., representing
approximately 1% of the equity of DP Applications, Inc. on a fully diluted
basis.
(8) Mr. O'Neill resigned from Sequent in January 1999.
(9) Includes 2,248,267 shares of Common Stock subject to options that are
exercisable or become exercisable within 60 days.
INDEPENDENT ACCOUNTANTS
Representatives of Deloitte & Touche LLP, Sequent's independent accountants,
and PricewaterhouseCoopers LLP, Sequent's former independent accountants, are
expected to be present at the special meeting, where they will be available to
respond to appropriate questions and have the opportunity to make a statement if
they so desire.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
As described in our proxy statement on Schedule 14A relating to our 1999
annual meeting of shareholders, any shareholder proposal to be considered at our
2000 annual meeting of shareholders or to be considered for inclusion in proxy
materials for the 2000 annual meeting must be received at our principal
executive offices no later than December 14, 1999. Any shareholder proposal must
include the information specified in our bylaws, and a copy of the relevant
provisions of the bylaws will be provided to any shareholder upon written
request to David Cunningham, Secretary of Sequent.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This proxy statement includes "forward-looking statements" within the
meaning of various provisions of the Securities Act of 1933 and the Securities
Exchange Act of 1934. All statements, other than statements of historical facts,
included in this proxy statement that address activities, events or developments
that Sequent expects or anticipates will or may occur in the future, including
such things as business strategy, competitive strengths, references to future
success and other such matters are forward-looking statements. These statements
are based on various assumptions and analyses made by Sequent in light of its
experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. However, whether actual future results and
developments will conform with Sequent's expectations and predictions is subject
to a number of risks and uncertainties, including the significant considerations
discussed in this proxy statement; general economic, market or business
conditions; the opportunities (or lack of opportunities) that may be presented
to and pursued by Sequent and its subsidiaries; competitive actions by other
computer server companies; changes in laws or regulations and other factors,
many of which are beyond the control of Sequent and its subsidiaries.
Consequently, all of the forward-looking statements made in this proxy statement
are qualified by these cautionary statements and we do not assume that the
actual results or developments anticipated by Sequent will be realized or, even
if substantially realized, that they will have the expected consequences to or
effects on Sequent and its subsidiaries or their business or operations.
The cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by Sequent or persons acting on our behalf.
Sequent does not undertake any obligation to release publicly any revisions to
any forward-looking statements to reflect events or circumstances after the date
of this proxy statement or to reflect the occurrence of unanticipated events.
34
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC under
the Exchange Act. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. You may read and copy this information at the
following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, including Sequent, who file electronically with the SEC. The address of
that site is http://www.sec.gov. You can also inspect reports, proxy statements
and other information about us at the offices of The Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20549.
The SEC allows us to "incorporate by reference" information into this
document. This means that the companies can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document, except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that we
have previously filed with the SEC. They contain important information about our
companies and their financial condition. Some of these filings have been amended
by later filings, which are also listed.
<TABLE>
<CAPTION>
SEQUENT SEC FILINGS (FILE NO. 0-15627) PERIOD/AS OF DATE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Annual Report on Form 10-K.................... Year ended January 2, 1999
Quarterly Reports on Form 10-Q................ Quarter ended April 3, 1999
Quarter ended July 3, 1999
Current Reports on Form 8-K................... March 22, 1999
May 17, 1999
July 12, 1999
</TABLE>
We incorporate by reference additional documents that Sequent may file with
the SEC between the date of this document and the date of the special meeting.
These documents include periodic reports, including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, as well as proxy
statements.
You can obtain any of the documents incorporated by reference in this
document through Sequent or from the SEC through the SEC's web site at the
address provided above. Documents incorporated by reference are available from
Sequent without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference into those documents. You can
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone at the following addresses:
Investor Relations
M/S ED02-803
15450 SW Koll Parkway
Beaverton, OR 97006
email: [email protected]
(503) 578-3343
35
<PAGE>
If you would like to request documents, please do so by September 17, 1999
to receive them before the special meeting. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the merger or Sequent that differs from, or adds to, the
information in this document or in our documents that are publicly filed with
the SEC. Therefore, if anyone does give you different or additional information,
you should not rely on it.
The information contained in this document speaks only as of its date unless
the information specifically indicates that another date applies.
36
<PAGE>
APPENDIX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
Among
INTERNATIONAL BUSINESS MACHINES CORPORATION,
PATHFINDER ACQUISITION CORP.
and
SEQUENT COMPUTER SYSTEMS, INC.
Dated as of July 11, 1999
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01 Effective Time of the Merger........................................................... A-4
SECTION 1.02 Closing................................................................................ A-4
SECTION 1.03 Effect of the Merger................................................................... A-4
SECTION 1.04 Articles of Incorporation and By-Laws.................................................. A-4
SECTION 1.05 Directors.............................................................................. A-5
SECTION 1.06 Officers............................................................................... A-5
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Capital Stock............................................................ A-5
SECTION 2.02 Exchange of Certificates............................................................... A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of the Company.......................................... A-6
SECTION 3.02 Representations and Warranties of Parent and Sub....................................... A-20
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01 Conduct of Business.................................................................... A-21
SECTION 4.02 No Solicitation........................................................................ A-24
SECTION 4.03 Conduct by Parent...................................................................... A-26
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01 Preparation of the Proxy Statement; Shareholders Meeting............................... A-26
SECTION 5.02 Access to Information; Confidentiality................................................. A-27
SECTION 5.03 Reasonable Best Efforts; Notification.................................................. A-27
SECTION 5.04 Stock Options.......................................................................... A-28
SECTION 5.05 Indemnification, Exculpation and Insurance............................................. A-29
SECTION 5.06 Fees and Expenses...................................................................... A-30
SECTION 5.07 Benefits Matters....................................................................... A-31
SECTION 5.08 Public Announcements................................................................... A-31
SECTION 5.09 Rights Agreement....................................................................... A-31
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger............................. A-32
SECTION 6.02 Conditions to Obligations of Parent and Sub............................................ A-32
SECTION 6.03 Conditions to Obligation of the Company................................................ A-33
SECTION 6.04 Frustration of Closing Conditions...................................................... A-33
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination............................................................................ A-33
SECTION 7.02 Effect of Termination.................................................................. A-34
SECTION 7.03 Amendment.............................................................................. A-34
SECTION 7.04 Extension; Waiver...................................................................... A-34
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01 Nonsurvival of Representations and Warranties.......................................... A-35
SECTION 8.02 Notices................................................................................ A-35
SECTION 8.03 Definitions............................................................................ A-36
SECTION 8.04 Interpretation......................................................................... A-36
SECTION 8.05 Counterparts........................................................................... A-36
SECTION 8.06 Entire Agreement; No Third-Party Beneficiaries......................................... A-36
SECTION 8.07 Governing Law.......................................................................... A-36
SECTION 8.08 Assignment............................................................................. A-36
SECTION 8.09 Enforcement............................................................................ A-37
</TABLE>
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of July 11, 1999, by and among
INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation ("Parent"),
PATHFINDER ACQUISITION CORP., an Oregon corporation and a wholly owned
subsidiary of Parent ("Sub"), and SEQUENT COMPUTER SYSTEMS, INC., an Oregon
corporation (the "Company").
WHEREAS the Board of Directors of each of the Company and Sub deems it
advisable and in the best interests of their respective shareholders to
consummate the merger (the "Merger"), on the terms and subject to the conditions
set forth in this Agreement, of Sub with and into the Company in which the
Company would become a wholly owned subsidiary of Parent and have adopted the
Plan of Merger (as defined in Section 1.01) in accordance with Oregon Revised
Statutes ("ORS") 60.481;
WHEREAS the Board of Directors of the Company (i) has determined that the
consideration to be paid to the shareholders of the Company in the Merger for
each share of Company Common Stock (as defined in Section 2.01) held by them is
fair to and in the best interests of such shareholders and recommends that such
shareholders approve the Plan of Merger in accordance with ORS 60.487 and (ii)
has approved the Merger;
WHEREAS Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, articles of merger (the "Articles of Merger") prepared in
accordance with ORS 60.494, which shall include the plan of merger in the form
attached hereto as Exhibit A (the "Plan of Merger"), shall be delivered by the
Company to the office of the Secretary of State of the State of Oregon (or the
office of any other entity required by Chapter 60 of the ORS in order for the
Merger to become effective) for filing, as provided in ORS 60.494, as soon as
practicable on the Closing Date (as defined in Section 1.02). The Merger shall
become effective upon the filing of the Articles of Merger with the office of
the Secretary of State of the State of Oregon (or such other office) or at such
time thereafter as is agreed upon by Parent and the Company and provided in the
Articles of Merger (the "Effective Time").
SECTION 1.02. CLOSING. The closing of the Merger (the "Closing") will take
place at 11:00 a.m., New York time, on a date to be specified by the parties,
which shall be not later than the second business day after satisfaction or
waiver of the conditions set forth in Article VI that by their terms are not to
be satisfied or waived at the Closing (the "Closing Date"), at the offices of
Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York 10019, unless
another time, date or place is agreed to in writing by Parent and the Company.
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time Sub shall be
merged with and into the Company, and the Company shall continue as the
surviving corporation (the "Surviving Corporation"). The Merger shall have the
effects set forth in ORS 60.497.
SECTION 1.04. ARTICLES OF INCORPORATION AND BY-LAWS. (a) The Articles of
Incorporation of Sub, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law, except
that Article I of the Articles of Incorporation of the Surviving Corporation
shall be amended to
A-4
<PAGE>
read in its entirety as follows: "The name of the corporation is SEQUENT
COMPUTER SYSTEMS, INC."
(b) The By-laws of Sub as in effect at the Effective Time shall be the
By-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.05. DIRECTORS. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 1.06. OFFICERS. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01. CONVERSION OF CAPITAL STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, par value $0.01 per share, of the Company (together with
the associated Rights (as defined in Section 3.01(c)), the "Company Common
Stock"), or any shares of capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of common
stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. All shares
of Company Common Stock that are owned by the Company, as treasury stock,
Parent or Sub immediately prior to the Effective Time shall automatically be
canceled and retired and shall cease to exist and no consideration shall be
delivered in exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be canceled in accordance with Section 2.01(b)) shall be
converted into the right to receive $18 in cash, without interest (the
"Merger Consideration"). At the Effective Time all such shares shall no
longer be outstanding and shall automatically be canceled and shall cease to
exist, and each holder of a certificate that immediately prior to the
Effective Time represented any such shares (a "Certificate") shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration. The right of any holder of any share of Company Common Stock
to receive the Merger Consideration shall be subject to and reduced by the
amount of any withholding that is required under applicable tax law.
SECTION 2.02. EXCHANGE OF CERTIFICATES. (a) PAYING AGENT. Prior to the
Effective Time Parent shall designate a bank or trust company reasonably
acceptable to the Company to act as agent for the payment of the Merger
Consideration upon surrender of Certificates (the "Paying Agent"), and, from
time to time after the Effective Time, Parent shall make available, or cause the
Surviving Corporation to make available, to the Paying Agent funds in amounts
and at the times necessary for the payment of the Merger Consideration pursuant
to Section 2.01(c) upon surrender of Certificates, it being understood that any
and all interest earned on funds made available to the Paying Agent pursuant to
this Agreement shall be turned over to Parent.
(b) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
Certificate (i) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates held
by such person shall pass, only upon proper delivery of the Certificates to the
Paying Agent and shall be in a form and
A-5
<PAGE>
have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Paying Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed, and such other documents as may reasonably be required by the Paying
Agent, the holder of such Certificate shall be entitled to receive from the
Paying Agent, on the behalf of Parent, as promptly as practicable in accordance
with the customary procedures of the Paying Agent, in exchange therefor the
amount of cash into which the shares formerly represented by such Certificate
shall have been converted pursuant to Section 2.01(c), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares that is not registered in the stock transfer books of the Company,
payment may be made to a person other than the person in whose name the
Certificate so surrendered is registered if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of such Certificate or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable.
(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY STOCK. All cash paid upon the
surrender of a Certificate in accordance with the terms of this Article II shall
be deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Company Common Stock formerly represented by such Certificate. At the
close of business on the day on which the Effective Time occurs the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Paying Agent for transfer or any other reason, they
shall be canceled and exchanged as provided in this Article II.
(d) NO LIABILITY. None of Parent, Sub, the Company or the Paying Agent
shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth on the disclosure schedule (with specific reference to the section of this
Agreement to which the information stated in such disclosure relates) delivered
by the Company to Parent prior to the execution of this Agreement (the "Company
Disclosure Schedule"), the Company represents and warrants to Parent and Sub as
follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Company and
its subsidiaries (as defined in Section 8.03) (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization (except, in the case of good standing, for
entities organized under the laws of any jurisdiction that does not recognize
such concept), (ii) has all requisite corporate, company or partnership power
and authority to carry on its business as now being conducted and (iii) is duly
qualified or licensed to do business and is in good standing in each
jurisdiction (except, in the case of good standing, any jurisdiction that does
not recognize such concept) in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, other than where the failure to be so organized, existing,
qualified or licensed or in good standing (except in the case of clause (i)
above with respect to the Company) individually or in the aggregate is not
reasonably likely to have a material adverse effect (as defined in Section 8.03)
on the Company. The Company has delivered to Parent complete and correct copies
of its Articles of Incorporation and By-laws and the articles of incorporation
and by-laws (or similar organizational
A-6
<PAGE>
documents) of each of its subsidiaries, in each case as amended to the date
hereof. The Company has made available to Parent and its representatives true
and complete copies of the minutes of all meetings of the shareholders, the
Board of Directors and each committee of the Board of Directors of the Company
and each of its subsidiaries held since January 1, 1997.
(b) SUBSIDIARIES. Section 3.01(b) of the Company Disclosure Schedule lists
each subsidiary of the Company. All the outstanding shares of capital stock or
other equity or voting interests of each such subsidiary are owned by the
Company, by another wholly owned subsidiary of the Company or by the Company and
another wholly owned subsidiary of the Company, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens"), and are duly authorized, validly
issued, fully paid and nonassessable. Except for the capital stock or other
equity or voting interests of its subsidiaries, the Company does not own,
directly or indirectly, any capital stock or other equity or voting interests in
any corporation, partnership, joint venture, association or other entity.
(c) CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock and 5,000,000 shares of
preferred stock, par value $0.01 per share (the "Company Preferred Stock"), of
which 502,000 shares have been designated as Series A Preferred Shares (the
"Series A Preferred Stock"). At the close of business on July 9, 1999, (i)
42,104,004 shares of Company Common Stock (excluding treasury shares) were
issued and outstanding, (ii) no shares of Company Common Stock were held by the
Company in its treasury, (iii) 502,000 shares of Series A Preferred Stock were
reserved for issuance in connection with the rights (the "Rights") to purchase
shares of Series A Preferred Stock issued pursuant to the Rights Agreement dated
as of April 14, 1998 (the "Rights Agreement"), between the Company and
ChaseMellon Shareholder Services L.L.C., (iv) warrants to acquire 225,000 shares
of Company Common Stock from the Company pursuant to the warrant agreements set
forth on Schedule 3.01(c) of the Company Disclosure Schedule (the "Warrants")
were outstanding; (v) options to acquire 9,500,682 shares of Company Common
Stock from the Company pursuant to the 1987 Employee Stock Option Plan, the 1989
Stock Incentive Plan, the 1995 Stock Incentive Plan, the 1996 Stock Option Plan
and the 1997 Stock Option Plan (such plans and arrangements, collectively, the
"Company Stock Plans") were issued and outstanding; (vi) 2,947,357 shares of
Company Common Stock were reserved and available for issuance pursuant to the
Employee Stock Purchase Plan (the "ESPP"); and (vii) no shares of Company
Preferred Stock were issued and outstanding or were held by the Company in its
treasury. No shares of Company Common Stock are owned by any subsidiary of the
Company. The Company has delivered to Parent a complete and correct list, as of
the close of business on June 28, 1999, of all outstanding stock options or
other rights to purchase or receive Company Common Stock granted under the
Company Stock Plans (collectively, the "Stock Options") and the Warrants, the
number of shares subject to each such Stock Option and Warrant, the grant dates
and exercise prices of each such Stock Option and Warrant and the names of the
holders thereof. As of the close of business on July 9, 1999, there were
outstanding Stock Options to purchase 8,697,327 shares of Company Common Stock
with exercise prices on a per share basis lower than the Merger Consideration,
and the weighted average exercise price of such Stock Options was equal to
$12.22. During the biweekly period ending June 11, 1999, the aggregate amount
credited to the accounts of the participants in the ESPP was $571,000 and in
each payroll period thereafter the aggregate amount credited to such accounts
did not exceed such amount. Except as set forth above, at the close of business
on July 9, 1999, no shares of capital stock or other voting securities of the
Company, or options, warrants or other rights to acquire any such stock or
securities were issued, reserved for issuance or outstanding. Since July 9,
1999, until the date of this Agreement, (x) there have been no issuances by the
Company of shares of capital stock or other voting securities of the Company
other than issuances of shares of Company Common Stock pursuant to the exercise
of Stock Options and Warrants outstanding on such date as required by their
terms as in effect on the date of this Agreement and (y) there have been no
issuances by the Company of options, warrants or other rights to acquire shares
of capital stock or other voting securities from the Company, other than for
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rights that may have arisen under the ESPP. There are no outstanding stock
appreciation rights or rights (other than the Stock Options, the Warrants and
rights that may have arisen under the ESPP) to receive shares of Company Common
Stock on a deferred basis granted under the Company Stock Plans or otherwise.
All outstanding shares of capital stock of the Company are, and all shares that
may be issued pursuant to the Company Stock Plans, the Warrants and the ESPP
will be, when issued in accordance with the terms thereof, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. There are no bonds, debentures, notes or other indebtedness of the
Company or any of it subsidiaries, and no securities or other instruments or
obligations of the Company or any of its Subsidiaries the value of which is in
any way based upon or derived from any capital or voting stock of the Company,
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of the Company
may vote. Except as set forth above and except as expressly permitted under
Section 4.01(a), there are no securities, options, warrants, calls, rights,
contracts, commitments, agreements, instruments, arrangements, understandings,
obligations or undertakings of any kind to which the Company or any of its
subsidiaries is a party, or by which the Company or any of its subsidiaries is
bound, obligating the Company or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of, or securities convertible into, or
exchangeable or exercisable for, shares of capital stock or other voting
securities of, the Company or any of its subsidiaries or obligating the Company
or any of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, contract, commitment, agreement,
instrument, arrangement, understanding, obligation or undertaking. There are not
any outstanding contractual obligations of the Company or any of its
subsidiaries to (i) repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries or (ii) vote or dispose
of any shares of the capital stock of any of its subsidiaries. To the knowledge
of the Company, as of the date of hereof, there are no irrevocable proxies and
no voting agreements with respect to any shares of the capital stock or other
voting securities of the Company or any of its subsidiaries.
(d) AUTHORITY; NONCONTRAVENTION. The Company has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement, subject, in the case of the Merger,
to obtaining the Shareholder Approval (as defined in Section 3.01(t)). The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated by this Agreement, subject, in the case of the Merger, to obtaining
the Shareholder Approval. This Agreement has been duly executed and delivered by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The Board of
Directors of the Company, at a meeting duly called and held at which all
directors of the Company were present, duly and unanimously adopted resolutions
(i) adopting this Agreement, (ii) declaring that it is advisable and in the best
interests of the Company's shareholders to consummate the Merger on the terms
and subject to the conditions set forth in this Agreement, (iii) declaring that
the consideration to be paid to such shareholders in the Merger for each share
of Company Common Stock held by them is fair to and in the best interests of
such shareholders, (iv) directing that the Plan of Merger be submitted to a vote
at a meeting of such shareholders, (v) recommending that such shareholders
approve the Plan of Merger and (vi) approving the Merger upon the terms and
subject to the conditions set forth in this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement and compliance with the provisions of this Agreement do not
and will not conflict with, or result in any violation or breach of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of, or result in, termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or result in the creation of
any Lien in or upon any of the properties
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or assets of the Company or any of its subsidiaries under, or give rise to any
increased, additional, accelerated or guaranteed rights or entitlements under,
any provision of (i) the Articles of Incorporation or By-laws of the Company or
the articles of incorporation or by-laws (or similar organizational documents)
of any of its subsidiaries, (ii) any loan or credit agreement, bond, debenture,
note, mortgage, indenture, lease or other contract, commitment, agreement,
instrument, arrangement, understanding, obligation, undertaking, permit,
concession, franchise or license (each, a "Contract") to which the Company or
any of its subsidiaries is a party or any of their respective properties or
assets is subject or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any (A) statute, law, ordinance, rule or
regulation or (B) judgment, order or decree, in each case, applicable to the
Company or any of its subsidiaries or their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses or Liens that individually or in the
aggregate are not reasonably likely to (x) have a material adverse effect on the
Company, (y) impair in any material respect the ability of the Company to
perform its obligations under this Agreement or (z) prevent or materially
impede, interfere with, hinder or delay the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state or local, domestic or foreign, government or any court, administrative
agency or commission or other governmental or regulatory authority or agency,
domestic or foreign (a "Governmental Entity"), is required by or with respect to
the Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated by this Agreement, except for (1) the filing of a
premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
or any other applicable competition, merger control, antitrust or similar law,
(2) the filing with the Securities and Exchange Commission (the "SEC") of a
proxy statement relating to the approval by the Company's shareholders of this
Agreement (as amended or supplemented from time to time, the "Proxy Statement")
and such reports under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (3) the filing of the Articles of
Merger with the office of the Secretary of State of the State of Oregon (or the
office of any other entity required by Chapter 60 of the ORS in order for the
Merger to become effective) and appropriate documents with the relevant
authorities of other states in which the Company or any of its subsidiaries is
qualified to do business, (4) any filings required under the rules and
regulations of the Nasdaq National Market and (5) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made individually or in the aggregate are not
reasonably likely to (x) have a material adverse effect on the Company, (y)
impair in any material respect the ability of the Company to perform its
obligations under this Agreement or (z) prevent or materially impede, interfere
with, hinder or delay the consummation of any of the transactions contemplated
by this Agreement.
(e) SEC DOCUMENTS. The Company has filed with the SEC, and has heretofore
made available to Parent true and complete copies of, all reports, schedules,
forms, statements and other documents required to be filed with the SEC by the
Company since December 29, 1996 (together with all information incorporated
therein by reference, the "SEC Documents"). No subsidiary of the Company is
required to file any form, report or other document with the SEC. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933 (the "Securities Act") or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents at the time they were filed contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any SEC Document filed and publicly available
prior to the date hereof (a "Filed SEC Document") has been revised or superseded
by a later-filed Filed SEC Document, none of
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the SEC Documents contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements (including the related notes) of
the Company included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
and recurring year-end audit adjustments and the absence of footnotes). Except
as set forth in the Filed SEC Documents, the Company and its subsidiaries have
no liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that individually or in the aggregate are reasonably
likely to have a material adverse effect on the Company.
(f) INFORMATION SUPPLIED. None of the information included or incorporated
by reference in the Proxy Statement will, at the date it is first mailed to the
Company's shareholders or at the time of the Shareholders Meeting (as defined in
Section 5.01) or at the time of any amendment or supplement thereof, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by Parent or Sub
specifically for inclusion or incorporation by reference in the Proxy Statement.
The Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the most
recent audited financial statements included in the Filed SEC Documents, the
Company and its subsidiaries have conducted their respective businesses only in
the ordinary course consistent with past practice, and there has not been (i)
any material adverse effect or any state of facts, change, development, effect
or occurrence that is reasonably likely to result in a material adverse effect
on the Company, (ii) any declaration, setting aside or payment of any dividend
on, or other distribution (whether in cash, stock or property) in respect of,
any of the Company's or any of its subsidiaries' capital stock, except for
dividends by a wholly owned subsidiary of the Company to its parent, (iii) any
split, combination or reclassification of any of the Company's or any of its
subsidiaries' capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of capital stock or other securities of the Company or any of its subsidiaries,
(iv) (x) any granting by the Company or any of its subsidiaries of any increase
in compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by the Company or any of its subsidiaries of any bonus, except
for bonuses made in the ordinary course of business consistent with past
practice, in each case to any current or former director, officer, employee or
consultant, (y) any granting by the Company or any of its subsidiaries to any
current or former director, officer, or employee of any increase in severance or
termination pay or (z) any entry by the Company or any of its subsidiaries into,
or any amendment of, (A) any currently effective employment, severance,
termination or indemnification agreement or consulting agreement (other than in
the ordinary course of business consistent with past practice), with any current
or former director, officer, employee or consultant or (B) any agreement with
any current or former director, officer, employee or consultant the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company of the nature contemplated by
this Agreement, (v) any damage, destruction or loss, whether or not covered by
insurance, that individually or in the aggregate is reasonably likely to have a
material adverse effect on the Company, (vi) any change in
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financial or tax accounting methods, principles or practices by the Company,
except insofar as may have been required by a change in GAAP or applicable law,
(vii) any tax election that individually or in the aggregate is reasonably
likely to have a material adverse effect on the Company or any of its tax
attributes or any settlement or compromise of any material income tax liability,
(viii) any revaluation by the Company of any of its material assets or (ix) any
licensing agreement or any agreement with regard to the acquisition or
disposition of any material Intellectual Property (as defined in Section
3.01(q)) or rights thereto other than licenses by the Company or its
subsidiaries in the ordinary course of business consistent with past practice of
(A) software to end users or distributors solely for the use with the hardware
products of the Company or its subsidiaries or (B) technology that is included
in or with the products of the Company or its subsidiaries.
(h) LITIGATION. There is no suit, claim, action, investigation or
proceeding pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries that individually or in the
aggregate is reasonably likely to have a material adverse effect on the Company,
nor is there any statute, law, ordinance, rule, regulation, judgment, order or
decree, of any Governmental Entity or arbitrator outstanding against, or, to the
knowledge of the Company, investigation by any Governmental Entity involving,
the Company or any of its subsidiaries that individually or in the aggregate is
reasonably likely to have a material adverse effect on the Company.
(i) CONTRACTS. Except for Contracts filed as exhibits to the Filed SEC
Documents, none of the Company or any of its subsidiaries is a party to or bound
by, and none of their properties or assets are bound by or subject to, any
written or oral:
(i) material Contract not made in the ordinary course of business
entered into prior to the date of this Agreement;
(ii) Contract pursuant to which the Company or any of its subsidiaries
has agreed not to compete with any person or to engage in any activity or
business, or pursuant to which any benefit is required to be given or lost
as a result of so competing or engaging;
(iii) Contract pursuant to which the Company or any of its subsidiaries
is restricted in any material respect in the development, marketing or
distribution of their respective products or services (other than (A)
restrictions on the scope of a license granted to the Company, (B)
restrictions entered into in the ordinary course of business consistent with
past practice prior to the date of this Agreement and (C) restrictions that
would not (without any action by Parent or its subsidiaries to assume such
restriction) in any way apply to Parent or any of its subsidiaries (other
than the Company and its subsidiaries) following the Merger);
(iv) Contract with (A) any affiliate of the Company or any of its
subsidiaries or (B) any current or former director or officer of the Company
or any of its subsidiaries or of any affiliate of the Company or any of its
subsidiaries or any of the 25 most highly compensated employees of the
Company and its subsidiaries, taken as a whole, or (C) any affiliate of any
such person (other than (u) Contracts with DP Applications (as defined in
Section 3.01(x)), (v) contracts on arm's-length terms with companies whose
common stock is publicly traded, (w) employment agreements referred to in
Section 3.01(k), (x) offer letters providing solely for "at will"
employment, (y) invention assignment and confidentiality agreements relating
to the assignment of inventions to the Company or any of its subsidiaries
not involving the payment of money and (z) Benefit Plans referred to in
Section 3.01(n));
(v) license or franchise (other than exclusive distribution agreements
entered into in the ordinary course of business consistent with past
practice prior to the date of this Agreement) granted by the Company or such
subsidiary pursuant to which the Company or such subsidiary has agreed to
refrain from granting license or franchise rights to any other person;
(vi) Contract under which the Company or such subsidiary has (i)
incurred any indebtedness that is currently owing or (ii) given any
guarantee in respect of indebtedness, in each case having an aggregate
principal amount in excess of $5,000,000;
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(vii) material Contract that requires consent, approval or waiver of or
notice to a third party in the event of or with respect to a transaction
such as the Merger, including in order to avoid termination of or a loss of
material benefit under any such Contract;
(viii) material Contract providing for payments of royalties to third
parties;
(ix) Contract granting a third party any license to Intellectual
Property that is not limited to the internal use of such third party;
(x) Contract providing confidential treatment by the Company or such
subsidiary of third party information other than non-disclosure agreements
and provisions entered into by the Company in the ordinary course of
business consistent with past practice;
(xi) Contract granting the other party to such Contract or a third party
"most favored nation" status that, following the Merger, would in any way
apply to Parent or any of its subsidiaries (other than the Company and its
subsidiaries and their products or services (other than any similar products
or services produced or offered by Parent or its subsidiaries (other than
the Company and its subsidiaries)));
(xii) Contract that guarantees or warrants a result or that expressly
guarantees or warrants that the products and/or services of the Company will
be Year 2000 Ready (as defined in Section 3.01(m)), except insofar as the
Company's or its subsidiaries' sole obligation in respect of a breach of
such guarantee or Warranty is the repair or replacement of the Company's or
its subsidiaries' products; and
(xiii) Contract which (i) has aggregate future sums due from the Company
or such subsidiary in excess of $2,500,000 and is not terminable by the
Company or such subsidiary for a cost of less than $250,000 or (ii) is
entered into prior to the date of this Agreement and is otherwise material
to the business of the Company or such subsidiary or as presently conducted
or as proposed to be conducted.
Each Contract of the Company and its subsidiaries is in full force and effect
and is a legal, valid and binding agreement of the Company or such subsidiary
and, to the knowledge of the Company or such subsidiary, of each other party
thereto, enforceable against the Company or any of its subsidiaries, as the case
may be, and, to the knowledge of the Company, against the other party or parties
thereto, in each case, in accordance with its terms, except for such failures to
be in full force and effect or enforceable that individually or in the aggregate
are not reasonably likely to have a material adverse effect on the Company. Each
of the Company and its subsidiaries has performed or is performing all material
obligations required to be performed by it under its Contracts and is not (with
or without notice or lapse of time or both) in breach or default in any material
respect thereunder, and, to the knowledge of the Company or such subsidiary, no
other party to any of its Contracts is (with or without notice or lapse of time
or both) in breach or default in any material respect thereunder except, in each
case, for such breaches that individually or in the aggregate are not reasonably
likely to have a material adverse effect on the Company. Neither the Company nor
any of its subsidiaries knows of any circumstances that are reasonably likely to
occur that could reasonably be expected to materially adversely affect its
ability to perform its obligations under any material Contract.
(j) COMPLIANCE WITH LAWS. The Company and its subsidiaries are, and since
December 29, 1996 have been, in compliance with all statutes, laws, ordinances,
rules, regulations, judgments, orders and decrees of any Governmental Entity
applicable to their businesses or operations, except for instances of possible
noncompliance that individually or in the aggregate are not reasonably likely to
have a material adverse effect on the Company, impair in any material respect
the ability of the Company to perform its obligations under this Agreement or
prevent or materially impede, interfere with, hinder or delay the consummation
of any of the transactions contemplated by this Agreement. None of the Company
or any of its subsidiaries has received, since December 29, 1996, a notice or
other written
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communication alleging a possible violation of any statute, law, ordinance,
rule, regulation, judgment, order or decree of any Governmental Entity
applicable to its businesses or operations, except for such violations that
individually or in the aggregate are not reasonably likely to have a material
adverse effect on the Company. The Company and its subsidiaries have in effect
all Federal, state and local, domestic and foreign, governmental consents,
approvals, orders, authorizations, certificates, filings, notices, permits,
concessions, franchises, licenses and rights (collectively "Permits") necessary
for them to own, lease or operate their properties and assets and to carry on
their businesses as now conducted and there has occurred no violation of, or
default under, any such Permit, except for the lack of Permits and for
violations of, or defaults under, Permits, which lack of Permits, violations or
defaults individually or in the aggregate are not reasonably likely to have a
material adverse effect on the Company. The Merger, in and of itself, could not
reasonably be expected to cause the revocation or cancellation of any such
Permit, which revocation or cancellation is reasonably likely to have a material
adverse effect on the Company.
(k) ABSENCE OF CHANGES IN BENEFIT PLANS; EMPLOYMENT AGREEMENTS; LABOR
RELATIONS. Except as disclosed in the Filed SEC Documents, since the date of
the most recent audited financial statements included in the Filed SEC
Documents, none of the Company or any of its subsidiaries has terminated,
adopted, amended or agreed to amend in any material respect any collective
bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
appreciation, restricted stock, stock option, phantom stock, performance,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other material plan, arrangement or understanding providing benefits
to any of its current or former directors, officers or employees (collectively,
"Benefit Plans"). Except as disclosed in the Filed SEC Documents, there exist no
(i) employment, severance, termination or indemnification agreements or material
consulting agreements between the Company or any of its subsidiaries, on the one
hand, and any current or former director, officer, employee or consultant of the
Company or any of its subsidiaries, on the other hand, or (ii) agreements
between the Company or any of its subsidiaries, on the one hand, and any current
or former director, officer, employee or consultant of the Company or any of its
subsidiaries, on the other hand, the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Company of the nature contemplated by this Agreement. There are no
collective bargaining or other labor union agreements to which the Company or
any of its subsidiaries is a party or by which it is bound. Since December 29,
1996, neither the Company nor any of its subsidiaries has encountered any labor
union organizing activity, or had any actual or threatened employee strikes,
work stoppages, slowdowns or lockouts that individually or in the aggregate are
reasonably likely to have a material adverse effect on the Company.
(l) ENVIRONMENTAL MATTERS. Except to the extent that the inaccuracy of any
of the following (or the circumstances giving rise to such inaccuracy) is not
reasonably likely to have a material adverse effect on the Company: (i) the
Company and each of its subsidiaries are in compliance with all applicable
Environmental Laws (as defined below); (ii) the Company and each of its
subsidiaries have all Permits required under Environmental Laws and are in
compliance with their respective requirements; (iii) there are no pending, or to
the knowledge of the Company or any of its subsidiaries, threatened claims,
proceedings or investigations against the Company or any of its subsidiaries
alleging any noncompliance with, or liability under, Environmental Law; (iv)
neither the Company nor any of its subsidiaries have received notice that the
Company or any of its subsidiaries is subject to potential liability under any
Environmental Law, including potential liability for the costs of investigating
or remediating contaminated property pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act, or analogous state law; (v) there
have been no Releases (as defined below) or threatened Releases of Hazardous
Substances (as defined below) on, at, under or about any properties currently or
formerly owned, leased or operated by the Company or any of its subsidiaries, or
any of their respective predecessors, and neither the Company nor any of its
subsidiaries has Released, disposed of or arranged for the disposal of Hazardous
Substances at any on-site or off-site
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location; and (vi) there are no facts, circumstances or conditions that are
reasonably likely to give rise to any liability of, or form the basis of a claim
against, the Company or any of its Subsidiaries in connection with any
Environmental Law. For purposes of this Agreement, the term "Environmental Laws"
shall mean any applicable Federal, state or local, domestic or foreign,
statutes, laws, regulations, ordinances, rules, codes, enforceable requirements,
agreements, orders, decrees, judgments or injunctions issued, promulgated or
entered into by any Governmental Entity relating to protection of the
environment, natural resources or human health and safety, or to the use,
management, disposal, Release or threatened Release of Hazardous Substances. For
purposes of this Agreement, the term "Hazardous Substances" shall mean any
explosive or radioactive substances or materials, any toxic or hazardous
substances or materials, including asbestos or asbestos-containing materials,
polychlorinated biphenyls, petroleum and petroleum products, and any other
substances or materials defined as, or included in the definition of, "hazardous
substances", "hazardous wastes", "hazardous materials" or "toxic substances", or
is otherwise regulated, under any Environmental Law. For purposes of this
Agreement, the term "Release" shall mean any spilling, leaking, pumping,
pouring, discharging, emitting, emptying, leaching, injecting, dumping,
disposing or migrating into or through the environment.
(m) YEAR 2000 COMPLIANCE. All computer and other systems, software,
hardware and other products (A) licensed or sold, or offered for licensing or
sale (including products under development), by the Company or any of its
subsidiaries under any trademark, service mark, brand name, certification mark,
assumed name or trade name owned or licensed for use by the Company or any of
its subsidiaries, whether produced by the Company or any of its subsidiaries or
supplied thereto by any third party, (B) produced by any third party that are
licensed to the customers of the Company or any of its subsidiaries by the
Company or any of its subsidiaries under a license that does not explicitly
disclaim liability with respect to failures of such products to be Year 2000
Ready and (C) produced by the Company or any of its subsidiaries, in each case
have been written, manufactured and tested to be Year 2000 Ready, except for
such failures to be Year 2000 Ready that individually or in the aggregate are
not reasonably likely to have a material adverse effect on the Company. All
internal data processing systems, equipment and facilities used by the Company
and its subsidiaries, including all information technology applications running
in the Company or any of its subsidiaries and all tools used to develop the
Company's or any of its subsidiaries' products, are Year 2000 Ready, except for
such failures to be Year 2000 Ready that individually or in the aggregate are
not reasonably likely to have a material adverse effect on the Company. No
failure on the part of the customers of or the suppliers to the Company and its
subsidiaries to be Year 2000 Ready is reasonably likely to have a material
adverse effect on the Company. For purposes of this Agreement, "Year 2000 Ready"
shall mean, with respect to any system, product, equipment or facility, that
such system, product, equipment or facility, when used with software and
equipment that is Year 2000 Ready, is capable of correctly processing,
providing, receiving and manipulating date data within and between the twentieth
and twenty-first centuries, and its operation and functionality has not been
adversely affected and will not be adversely affected by the advent of the Year
2000.
(n) ERISA COMPLIANCE. (i) Section 3.01(n)(i) of the Company Disclosure
Schedule contains a list of all "employee welfare benefit plans" (as defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
"ERISA")), "employee pension benefit plans" (as defined in Section 3(2) of
ERISA) and all other Benefit Plans maintained or contributed to by the Company
or any of its subsidiaries or any person or entity that, together with the
Company or any of its subsidiaries, is treated as a single employer (a "Commonly
Controlled Entity") under Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended (the "Code") for the benefit of any current or
former directors, officers or employees of the Company or any of its
subsidiaries. The Company has provided to Parent true, complete and correct
copies of (1) each Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (2) the most recent annual report on Form 5500 required
to be filed with the Internal Revenue Service (the "IRS") with respect to each
Benefit Plan (if
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any such report was required), (3) the most recent summary plan description for
each Benefit Plan for which such summary plan description is required and (4)
each trust agreement and group annuity contract relating to any Benefit Plan.
Each Benefit Plan has been administered in accordance with its terms, except
where the failure so to be administered individually or in the aggregate is not
reasonably likely to have a material adverse effect on the Company. The Company
and its subsidiaries and all the Benefit Plans are in compliance with all
applicable provisions of ERISA and the Code, except for instances of possible
noncompliance that individually or in the aggregate are not reasonably likely to
have a material adverse effect on the Company.
(ii) Neither the Company nor any Commonly Controlled Entity has
maintained, contributed to or been obligated to contribute to any Benefit
Plan that is subject to Title IV of ERISA.
(iii) With respect to any Benefit Plan that is an employee welfare
benefit plan, there are no understandings, agreements or undertakings,
written or oral, that would prevent any such plan (including any such plan
covering retirees or other former employees) from being amended or
terminated without material liability to the Company or any of its
subsidiaries on or at any time after the Effective Time.
(iv) No current or former director, officer or employee of the Company
or any of its subsidiaries will be entitled to any additional compensation
or benefits or any acceleration of the time of payment or vesting of any
compensation or benefits under any Benefit Plan as a result of the
transactions contemplated by this Agreement or any benefits under any
Benefits Plan the value of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(v) The deduction of any amount payable pursuant to the terms of the
Benefit Plans or any other employment contracts or arrangements will not be
subject to disallowance under Section 162(m) of the Code.
(o) TAXES. (i) Each of the Company and its subsidiaries and each Company
Affiliated Group has timely filed all Federal, state and local, domestic and
foreign, income and franchise tax returns and reports and all other tax returns
and reports required to be filed by it and all such returns and reports are
complete and correct, except for such failures to file or to be complete and
correct that individually or in the aggregate are not reasonably likely to
result in a material liability for the Company. Each of the Company and its
subsidiaries and each Company Affiliated Group has timely paid all taxes due
with respect to the taxable periods covered by such returns and reports and all
other material taxes, and the most recent financial statements contained in the
Filed SEC Documents reflect an adequate reserve for all taxes payable by the
Company and its subsidiaries for all taxable periods and portions thereof
through the date of such financial statements.
(ii) No Federal, state or local, domestic or foreign, income or
franchise tax return or report or any other material tax return or report of
the Company or any of its subsidiaries or any Company Affiliated Group is
currently under audit or examination by any taxing authority, and no written
or unwritten notice of such an audit or examination has been received by the
Company or any of its subsidiaries (except for audits or examinations
commenced after the date of this Agreement that individually or in the
aggregate are not reasonably likely to result in a material liability for
the Company). There is no deficiency, refund litigation, proposed adjustment
or matter in controversy with respect to any taxes due and owing by the
Company, any of its subsidiaries or any Company Affiliated Group (except for
those arising after the date of this Agreement that individually or in the
aggregate are not reasonably likely to result in a material liability for
the Company). Each deficiency resulting from any completed audit or
examination relating to taxes by any taxing authority has been timely paid.
No issues relating to taxes were raised by the relevant taxing authority
during any presently pending audit or examination, and no issues relating to
taxes were raised by the relevant taxing authority in any completed audit or
examination that could reasonably be expected to recur in a later taxable
period, except for issues first raised after the date of this
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Agreement that individually or in the aggregate are not reasonably likely to
result in a material liability for the Company. All assessments for taxes
due and owing by the Company, any of its subsidiaries or any Company
Affiliated Group with respect to completed and settled examinations or
concluded litigation have been paid. As of the date of this Agreement, no
Federal, state or local, domestic or foreign, tax return or report of the
Company or any of its subsidiaries or any Company Affiliated Group has ever
been under audit or examination by the IRS or other relevant taxing
authority. The relevant statute of limitations is closed with respect to the
United States Federal tax returns of the Company and its subsidiaries for
all years through 1990 and with respect to taxable year 1994.
(iii) There is no currently effective agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any taxes and no power of attorney (other than powers of
attorney authorizing employees of the Company to act on behalf of the
Company) with respect to any taxes has been executed or filed with any
taxing authority.
(iv) No Liens for taxes exist with respect to any assets or properties
of the Company or any of its subsidiaries, except for statutory Liens for
taxes not yet due and Liens for taxes that the Company or any of its
subsidiaries is contesting in good faith through appropriate proceedings and
for which adequate reserves have been established.
(v) None of the Company or any of its subsidiaries is a party to or
bound by any tax sharing agreement, tax indemnity obligation or similar
agreement, arrangement or practice with respect to taxes (including any
advance pricing agreement, closing agreement or other agreement relating to
taxes with any taxing authority).
(vi) None of the Company or any of its subsidiaries will be required to
include in a taxable period ending after the Effective Time taxable income
attributable to income that accrued (for purposes of the financial
statements of the Company included in the Filed SEC Documents) in a prior
taxable period but was not recognized for tax purposes in any prior taxable
period as a result of the installment method of accounting, the completed
contract method of accounting, the long-term contract method of accounting,
the cash method of accounting or Section 481 of the Code or comparable
provisions of state or local tax law, domestic or foreign, or for any other
reason.
(vii) No amount or other entitlement that could be received (whether in
cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any director, officer or
employee of the Company or any of its affiliates who is a "disqualified
individual" under any Benefit Plan or other compensation arrangement
currently in effect would be characterized as an "excess parachute payment"
(as such terms are defined in Section 280G of the Code and in proposed
Treasury Regulation Section 1.280G-1).
(viii) The Company and its subsidiaries have complied with all
applicable statutes, laws, ordinances, rules and regulations relating to the
payment and withholding of taxes (including withholding of taxes pursuant to
Sections 1441, 1442, 3121 and 3402 of the Code or similar provisions under
any foreign Federal laws or any state or local laws, domestic and foreign)
and have, within the time and the manner prescribed by law, withheld from
and paid over to the proper governmental authorities all amounts required to
be so withheld and paid over under applicable laws.
(ix) As used in this Agreement, "taxes" shall include all Federal, state
and local, domestic and foreign, income, franchise, property, sales, excise,
employment, payroll, social security, value-added, ad valorem, transfer,
withholding and other taxes, including taxes based on or measured by gross
receipts, profits, sales, use or occupation, tariffs, levies, impositions,
assessments or governmental charges of any nature whatsoever, including any
interest penalties or additions with respect thereto.
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As used in this Agreement, "Company Affiliated Group" shall mean each group
of which the Company or any of its subsidiaries is or has been a member
during a period for which the group filed a tax return or report on an
affiliated, combined, consolidated or unitary basis.
(p) TITLE TO PROPERTIES. (i) The Company and each of its subsidiaries has
good and marketable title to, or valid leasehold interests in, all of its
material properties and assets except for such as are no longer used or useful
in the conduct of its businesses or as have been disposed of in the ordinary
course of business and except for defects in title, easements, restrictive
covenants and similar encumbrances that individually or in the aggregate are not
reasonably likely to have a material adverse effect on the Company. All such
material assets and properties, other than assets and properties in which the
Company or any of its subsidiaries has a leasehold interest, are free and clear
of all Liens, except for Liens that individually or in the aggregate are not
reasonably likely to have a material adverse effect on the Company.
(ii) Each of the Company and its subsidiaries has complied in all
material respects with the terms of all material leases to which it is a
party and under which it is in occupancy, and all such leases are in full
force and effect, except for such noncompliance or failures to be in full
force and effect that individually or in the aggregate are not reasonably
likely to have a material adverse effect on the Company. The Company and its
subsidiaries enjoy peaceful and undisturbed possession under all such
material leases, except for failures to do so that individually or in the
aggregate are not reasonably likely to have a material adverse effect on the
Company.
(q) INTELLECTUAL PROPERTY. (i) Section 3.01(q) of the Company Disclosure
Schedule lists all patents, trademarks, tradenames, service marks and registered
copyrights and applications therefor, if any, owned by or licensed to the
Company or any of its subsidiaries as of the date of this Agreement. The Company
has made available to Parent true and correct copies of all material license
agreements relating to Intellectual Property to which the Company or any of its
subsidiaries is a party as of the date of this Agreement.
(ii) Except to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy) is not reasonably
likely to have a material adverse effect on the Company:
(A) the Company and each of its subsidiaries owns, or is licensed or
otherwise has the right to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the conduct of
its business as currently conducted;
(B) none of the Company or any of its subsidiaries is infringing on
or otherwise violating the rights of any person with regard to any
copyright owned by, licensed to or otherwise used by the Company or any
of its subsidiaries;
(C) there is no suit, claim, action, investigation or proceeding
pending or, to the knowledge of the Company, threatened with respect to,
and the Company has not been notified of, any possible infringement by
the Company or any of its subsidiaries on or other violation of the
rights of any person with regard to any Intellectual Property owned by,
licensed to or otherwise used by the Company or any of its subsidiaries;
(D) to the knowledge of the Company, no person is infringing on or
otherwise violating any right of the Company or any of its subsidiaries
with respect to any Intellectual Property owned by, licensed to and/or
otherwise used by the Company or any of its subsidiaries;
(E) to the knowledge of the Company, none of the former or current
members of management or key personnel of the Company or any of its
subsidiaries, including all former and current employees, agents,
consultants and contractors who have contributed to or participated in
the conception and development of Intellectual Property of the Company or
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any of its subsidiaries, have a valid claim against the Company or any of
its subsidiaries in connection with the involvement of such persons in
the conception and development of any computer software or other
Intellectual Property of the Company or any of its subsidiaries, and no
such claim has been asserted or threatened;
(F) the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to any right, license or
encumbrance relating to, Intellectual Property owned by the Company or
any of its subsidiaries or with respect to which the Company or any of
its subsidiaries now has or has had any agreement with any third party,
or any right of termination, cancellation or acceleration of any material
Intellectual Property right or obligation set forth in any agreement to
which the Company or any of its subsidiaries is a party, or the loss or
encumbrance of any Intellectual Property or benefit related thereto, or
result in the creation of any Lien in or upon any Intellectual Property
or right, other than under certain contracts and agreements, the material
ones of which are set forth on Section 3.01(p) of the Company Disclosure
Schedule, that provide for their termination upon a change of control of
the Company;
(G) except in the ordinary course of business consistent with past
practice, no licenses or rights have been granted to distribute the
source code of, or to use the source code to create Derivative Works (as
defined below) of, any product currently marketed by, commercially
available from or under development by the Company or any of its
subsidiaries for which the Company possesses the source code; and
(H) the Company and each of its subsidiaries has taken all reasonable
and necessary steps to protect their Intellectual Property and their
rights thereunder, and to the knowledge of the Company no such rights to
Intellectual Property have been lost or are in jeopardy of being lost
through failure to act by the Company or any of its subsidiaries.
As used herein, "Derivative Work" shall mean a work that is based upon one
or more preexisting works, such as a revision, enhancement, modification,
abridgement, condensation, expansion or any other form in which such preexisting
works may be recast, transformed or adapted, and which, if prepared without
authorization of the owner of the copyright in such preexisting work, would
constitute a copyright infringement. For purposes hereof, a Derivative Work
shall also include any compilation that incorporates such a preexisting work as
well as translation from one human language to another and from one type of code
to another.
(iii) For purposes of this Agreement, "Intellectual Property" shall mean
trademarks (registered or unregistered), service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction
to register, the foregoing, including any extension, modification or renewal
of any such registration or application; inventions, discoveries and ideas,
whether patented, patentable or not in any jurisdiction; computer programs
and software (including source code, object code and data), know-how and any
other technology; trade secrets and confidential information and rights in
any jurisdiction to limit the use or disclosure thereof by any person;
writings and other works, whether copyrighted, copyrightable or not in any
jurisdiction; registration or applications for registration of copyrights in
any jurisdiction, and any renewals or extensions thereof; any similar
intellectual property or proprietary rights similar to any of the foregoing;
licenses, immunities, covenants not to sue and the like relating to any of
the foregoing; and any claims or causes of action arising out of or related
to any infringement, misuse or misappropriation of any of the foregoing.
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(r) BUSINESS COMBINATION CHARTER PROVISION. The approval of the Merger by
the Board of Directors of the Company referred to in Section 3.01(d) constitutes
approval of the Merger by the Continuing Directors (as defined in the Company's
Articles of Incorporation) for purposes of Section 11.2 of such Articles of
Incorporation and represents the only action necessary to ensure that such
Section 11.2 does not and will not apply to the execution or delivery of this
Agreement or the consummation of the Merger.
(s) STATE TAKEOVER STATUTES. The approval of the Merger by the Board of
Directors of the Company referred to in Section 3.01(d) constitutes approval of
the Merger for purposes of ORS 60.835 and represents the only action necessary
to ensure that ORS 60.835 does not and will not apply to the execution or
delivery of this Agreement or the consummation of the Merger. The consummation
of the Merger will not constitute a "control share acquisition" for purposes of
ORS 60.801 to ORS 60.816. No other state takeover or similar statute or
regulation is applicable to this Agreement, the Merger or the other transactions
contemplated by this Agreement.
(t) VOTING REQUIREMENTS. The affirmative vote at the Shareholders Meeting
or any adjournment or postponement thereof of the holders of a majority of the
outstanding shares of Company Common Stock in favor of approving the Plan of
Merger (the "Shareholder Approval") is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve or adopt this
Agreement or the consummation of the transactions contemplated by this
Agreement.
(u) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Morgan Stanley, Dean Witter,
Discover & Co., the fees and expenses of which will be paid by the Company, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission, or the reimbursement of expenses, in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company has delivered to Parent true and complete
copies of all agreements under which any such fees or expenses are payable and
all indemnification and other agreements related to the engagement of the
persons to whom such fees are payable. The fees and expenses of any accountant,
broker, financial advisor, consultant, legal counsel or other person retained by
the Company in connection with this Agreement or the transactions contemplated
hereby incurred or to be incurred by the Company in connection with this
Agreement and the transactions contemplated by this Agreement will not exceed
the fees and expenses set forth in Section 3.01(u) of the Company Disclosure
Schedule.
(v) OPINION OF FINANCIAL ADVISOR. The Company has received the written
opinion of Morgan Stanley, Dean Witter, Discover & Co., in customary form to the
effect that, as of the date hereof, the consideration to be received in the
Merger by the Company's shareholders is fair to the Company's shareholders from
a financial point of view, a copy of which opinion has been delivered to Parent.
(w) RIGHTS AGREEMENT. The Company has taken all actions necessary to
ensure that (i) the Rights Agreement and the Rights are and will be inapplicable
to Parent and its subsidiaries; (ii) neither Parent nor any of its subsidiaries
will be deemed to be an Acquiring Person (as defined in the Rights Agreement);
(iii) neither a Distribution Date nor a Stock Acquisition Date (each as defined
in the Rights Agreement) has occurred or will occur and the Rights have not and
will not become separable, distributable, unredeemable or exercisable as a
result of entering into this Agreement or consummating the Merger or the other
transactions contemplated by this Agreement; and (iv) the Rights Agreement will
terminate upon the earlier of the Final Expiration Date (as defined in the
Rights Plan) and the Effective Time.
(x) DP APPLICATIONS, INC. (i) ORGANIZATIONAL DOCUMENTS; STOCK OWNERSHIP.
The Company has delivered to Parent complete and correct copies of the articles
of incorporation and by-laws of DP Applications, Inc., an Oregon corporation
("DP Applications"), as amended to the date hereof. The Company has delivered to
Parent a complete and correct list, as of the close of business on July 6,
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1999, of all the shareholders of DP Applications and the number of shares
(categorized by class and series) of each class of capital stock of DP
Applications owned by each shareholder.
(ii) CONTRACTS WITH THE COMPANY; OBLIGATIONS OF THE COMPANY. As of the
date of this Agreement, Section 3.01(x)(ii) of the Company Disclosure
Schedule sets forth all Contracts between DP Applications or its
subsidiaries, on the one hand, and the Company or its subsidiaries, on the
other hand. Neither the Company nor any of its subsidiaries has any material
liability or obligation (whether fixed, contingent or otherwise) in respect
of any liability or obligation of, or in any way arising out of or in
connection with its ownership interest in or any act or omission of, DP
Applications or any of its subsidiaries.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and
Sub represent and warrant to the Company as follows:
(a) ORGANIZATION. Each of Parent and Sub is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated (except, in the case of good standing, for entities
organized under the laws of any jurisdiction that does not recognize such
concept) and has all requisite corporate power and authority to carry on its
business as now being conducted.
(b) AUTHORITY; NONCONTRAVENTION. Parent and Sub have the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this Agreement. The execution,
delivery and performance of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of Parent and Sub and no other corporate proceedings on the part of Parent
or Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by Parent and Sub, as applicable, and constitutes a valid
and binding obligation of Parent and Sub, as applicable, enforceable against
Parent and Sub, as applicable, in accordance with its terms. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement and compliance with the provisions of this Agreement do not
and will not conflict with, or result in any violation or breach of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of, or result in, termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of Parent under, or give rise to
any increased, additional, accelerated or guaranteed rights or entitlements
under, any provision of (i) the certificate of incorporation or by-laws of
Parent or similar organizational documents of any subsidiary of Parent
(including Sub), (ii) any Contract applicable to Parent or Sub or their
respective properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any (A) statute, law,
ordinance, rule or regulation or (B) judgment, order or decree, in each case,
applicable to Parent or Sub or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights, losses or Liens that individually or in the aggregate would
not impair in any material respect the ability of each of Parent and Sub to
perform its obligations under this Agreement or prevent or materially impede,
interfere with, hinder or delay the consummation of any of the transactions
contemplated by this Agreement. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity is required
by or with respect to Parent or Sub in connection with the execution and
delivery of this Agreement by Parent and Sub or the consummation by Parent and
Sub of the transactions contemplated by this Agreement, except for (1) the
filing of a premerger notification and report form under the HSR Act or any
other applicable competition, merger control, antitrust or similar law, (2) the
filing of the Articles of Merger with the Oregon Secretary of State and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business and (3) such other consents, approvals,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made individually or in the aggregate would not impair
in any material respect the ability of Parent or Sub to
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perform its obligations under this Agreement or prevent or materially delay the
consummation of any of the transactions contemplated by this Agreement.
(c) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Parent or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement will (except to the extent revised or
superseded by amendments or supplements contemplated hereby), at the date the
Proxy Statement is first mailed to the Company's shareholders or at the time of
Shareholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
(d) INTERIM OPERATIONS OF SUB. Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby and has engaged in no business
other than in connection with the transactions contemplated by this Agreement.
(e) CAPITAL RESOURCES. Parent has sufficient cash or access to cash to pay
the aggregate Merger Consideration.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. CONDUCT OF BUSINESS. (a) CONDUCT OF BUSINESS BY THE COMPANY.
During the period from the date of this Agreement to the Effective Time, except
as consented to in writing by Parent or as specifically contemplated by this
Agreement, the Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the ordinary course consistent with past practice
and use commercially reasonable efforts to comply with all applicable laws,
rules and regulations and, to the extent consistent therewith, use commercially
reasonable efforts to preserve their assets and technology and preserve their
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with them. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time, except as consented to in writing by Parent or as specifically
contemplated by this Agreement, the Company shall not, and shall not permit any
of its subsidiaries to:
(i)(x) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
capital stock except for dividends by a direct or indirect wholly owned
subsidiary of the Company to its parent, (y) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (z) purchase, redeem or otherwise acquire any shares of
capital stock or any other securities of the Company or its subsidiaries or
any options, warrants, calls or rights to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities convertible
into, or exchangeable for, or any options, warrants, calls or rights to
acquire, any such shares, voting securities or convertible securities (other
than (x) the issuance of Stock Options representing in the aggregate up to
250,000 shares of Company Common Stock during any calendar quarter, and in
the aggregate up to 750,000 shares of Company Common Stock during the term
of this Agreement, in the ordinary course of business consistent with past
practice and with an exercise price per share at least equal to the market
value of the Company Common Stock on the date of issuance (and with other
material terms no more favorable to such employee than the terms of the
Stock Options outstanding on the date of this Agreement that were issued
under similar circumstances), to any employee of the Company (other than
directors and officers of the Company) in connection with the hiring of such
employee, the promotion of such employee or a compensation package granted
to such employee in an effort to
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counter what the Company reasonably believes to have been a bona fide offer
of employment made to such employee by a third party, (y) the granting of
rights that may arise under the ESPP, as the ESPP is in effect on the date
of this Agreement or (z) the issuance of shares of Company Common Stock upon
the exercise of Stock Options and Warrants in accordance with their terms
and pursuant to the ESPP, as the ESPP is in effect on the date of this
Agreement);
(iii) amend its articles of incorporation or by-laws (or similar
organizational documents) or take any action to cause or permit DP
Applications to amend its articles of incorporation or by-laws;
(iv) acquire or agree to acquire (x) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by purchasing
all of or a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, joint venture, association or
other entity or division thereof or (y) any assets other than inventory,
components, raw materials and other immaterial assets in the ordinary course
of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, except
sales of inventory or used equipment in the ordinary course of business
consistent with past practice;
(vi) (x) repurchase, prepay or incur any indebtedness or guarantee any
indebtedness of another person or issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
the Company or any of its subsidiaries, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business consistent
with past practice or (y) make any loans, advances or capital contributions
to, or investments in, any other person, other than the Company or any
direct or indirect wholly owned subsidiary of the Company;
(vii) incur or commit to any capital expenditures, or any obligations or
liabilities in connection therewith, in any manner materially inconsistent
with the Company's current capital budget, a true and complete copy of which
(including all back-up materials) has been provided to Parent prior to the
date hereof;
(viii) pay, discharge, settle or satisfy any claims (including claims of
shareholders), liabilities or obligations (whether absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business consistent with
past practice or as required by their terms as in effect on the date hereof,
of claims, liabilities or obligations reflected or reserved against in the
most recent audited financial statements (or the notes thereto) of the
Company included in the Filed SEC Documents (for amounts not in excess of
such reserves) or incurred since the date of such financial statements in
the ordinary course of business consistent with past practice, waive,
release, grant or transfer any right of material value other than in the
ordinary course of business consistent with past practice, or waive any
material benefits of, or agree to modify in any adverse respect, or fail to
enforce, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party;
(ix) modify, amend or terminate any Contract to which the Company or
such subsidiary is a party or waive, release or assign any rights or claims
thereunder, in each case in a manner materially adverse to the Company and
its subsidiaries, taken as a whole, and, in particular, modify or amend the
Aircraft Lease Agreement dated as of October 1, 1996, between the Company
and CP Transportation, Inc. to cause the expiration date of such Contract to
be later than the expiration date set forth in such Contract on the date of
this Agreement (which expiration date is hereby represented and warranted to
be October 1, 1999) or, if later, the Effective Time;
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(x) enter into any Contract with the persons listed on Schedule 4.01(x)
of the Company Disclosure Schedule;
(xi) enter into any Contract with DP Applications or any of its
subsidiaries, except any Contract relating to joint installation,
maintenance and/or service programs with respect to bundled systems and
software produced by the Company and DP Applications (provided that the
revenue per product unit of DP Applications sold pursuant to any such
Contract shall not be greater than the amount DP Applications would be
expected to receive if such DP Applications product units were sold
separately from any products or services of the Company);
(xii) enter into any material Contract not otherwise prohibited by any
other provision of this Agreement, including any arrangements involving
material Intellectual Property; PROVIDED, HOWEVER, that for purposes of this
clause (xii), the following shall be deemed not to be material if entered
into in the ordinary course of business consistent with past practice: (A)
Contracts with users of the Company's or any of its subsidiaries' products
or services relating to the sale or license of such products or services,
(B) Contracts with distributors or resellers of the Company's or any of its
subsidiaries' products or services, (C) licenses by the Company or any of
its subsidiaries of technology that is included in or with the products of
the Company or any of its subsidiaries, (D) Contracts that have aggregate
future sums due from the Company or any of its subsidiaries in an amount not
to exceed $2,500,000 and that are terminable by the Company or such
subsidiary for a cost of less than $250,000, (E) Contracts with third party
service providers to provide services to the customers of the Company or any
of its subsidiaries, (F) real property leases, real property maintenance
Contracts and similar Contracts related to real property leases (provided
that each such contract shall be for a period no longer than one year), (G)
consulting services Contracts and (H) currency exchange swap agreements,
currency exchange cap agreements or currency exchange collar agreements
(other than those entered into for speculative purposes);
(xiii) except as otherwise specifically contemplated by this Agreement
or as required to comply with applicable law or any Contract or Benefit Plan
existing on the date hereof, (A) pay to any current or former director,
officer or employee of the Company any benefit not provided for under any
Benefit Plan, other than the payment of cash compensation in the ordinary
course of business consistent with past practice, (B) except to the extent
expressly permitted under Section 4.01(a)(ii), grant any awards under any
Benefit Plan (including the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units or restricted
stock or the removal of existing restrictions in any Contract or Benefit
Plan or awards made thereunder), (C) take any action to fund or in any other
way secure the payment of compensation or benefits under any Contract or
Benefit Plan or (D) take any action to accelerate the vesting or payment of
any compensation or benefit under any Benefit Plan;
(xiv) except as otherwise specifically contemplated by this Agreement,
take any action that would or is reasonably likely to result in (A) any
representation and warranty of the Company set forth in this Agreement that
is qualified as to materiality or material adverse effect becoming untrue
(as so qualified), (B) any such representation and warranty that is not so
qualified becoming untrue in any material respect or (C) any condition to
the Merger set forth in Article VI not being satisfied; or
(xv) authorize any of, or commit, resolve or agree to take any of, the
foregoing actions.
(b) CERTAIN TAX MATTERS. During the period from the date of this Agreement
to the Effective Time, (i) the Company and each of its subsidiaries shall timely
file all Federal, state and local, domestic and foreign, income and franchise
tax returns and reports and all other material tax returns and reports
("Post-Signing Returns") required to be filed by each such entity (after taking
into account any extensions); (ii) the Company and each of its subsidiaries will
timely pay all taxes due and payable in respect of such Post-Signing Returns
that are so filed; (iii) the Company will accrue a reserve in its
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books and records and financial statements in accordance with past practice for
all taxes payable by the Company or any of its subsidiaries for which no
Post-Signing Return is due prior to the Effective Time; (iv) the Company and
each of its subsidiaries will promptly notify Parent of any suit, claim, action,
investigation, proceeding or audit (collectively, "Actions") pending against or
with respect to the Company or any of its subsidiaries in respect of any tax
where there is a reasonable possibility of a determination or decision that is
reasonably likely to have a material adverse effect on the Company's or any of
its subsidiaries' tax liabilities or tax attributes and will not settle or
compromise any such Action without Parent's consent; and (v) none of the Company
or any of its subsidiaries will make or change any material tax election without
Parent's consent, which consent shall not be unreasonably withheld.
(c) ADVICE OF CHANGES; FILINGS. The Company shall confer with Parent at
the times that Parent shall reasonably request (which is expected to be on a
regular and frequent basis) to report on operational matters and other matters
requested by Parent, other than patent applications. The Company and Parent
shall each promptly provide the other copies of all filings made by such party
with any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby, other than the portions of such filings that
include confidential information not directly related to the transactions
contemplated by this Agreement.
SECTION 4.02. NO SOLICITATION. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, or authorize or permit any director, officer
or employee of the Company or any of its subsidiaries or any investment banker,
attorney, accountant or other advisor or representative of the Company or any of
its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage,
or take any other action knowingly to facilitate, any Takeover Proposal (as
defined below) or (ii) enter into, continue or otherwise participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, any Takeover Proposal; PROVIDED, HOWEVER, that if, at any time
prior to obtaining the Shareholder Approval, the Board of Directors of the
Company determines in good faith, after consultation with outside counsel, that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's shareholders under applicable law, the Company and its representatives
may, in response to a Superior Proposal (as defined in Section 4.02(b)) that was
unsolicited and that did not otherwise result from a breach of this Section
4.02(a), and subject to compliance with Section 4.02(c), (x) furnish information
with respect to the Company and its subsidiaries to any person making such
Superior Proposal (and its representatives) pursuant to a customary
confidentiality agreement (which confidentiality agreement contains terms that
are equivalent to, and in no respect less favorable to the Company than, the
terms of the Confidentiality Agreement dated June 25, 1999, between Parent and
the Company (as it may be amended from time to time, the "Confidentiality
Agreement")) and (y) participate in discussions or negotiations with the person
making such Superior Proposal (and its representatives) regarding such Superior
Proposal; and PROVIDED FURTHER that if the Company has received an unsolicited
Takeover Proposal which (i) specifies consideration with a higher value than the
consideration payable in the Merger, (ii) does not contain any term or condition
that would result in such Takeover Proposal failing any of the criteria for a
Superior Proposal set forth in the definition thereof and (iii) the Board of
Directors of the Company determines in good faith that such Takeover Proposal
might constitute a Superior Proposal but cannot definitively make such
determination without obtaining certain additional information relating to such
Takeover Proposal or the person making such Takeover Proposal, then such Board
of Directors may send a written communication to such person requesting such
additional information (and only such additional information) as is necessary
for such Board of Directors to make such determination. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any director, officer or employee of the Company or
any of its subsidiaries or any investment banker, attorney, accountant or other
advisor or representative of the Company or any of its subsidiaries shall be
deemed to be a breach of this Section 4.02(a) by the Company.
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For purposes of this Agreement, "Takeover Proposal" means any inquiry,
proposal or offer from any person relating to, or that is reasonably likely to
lead to, (i) any direct or indirect acquisition or purchase of a business that
constitutes 20% or more of the total revenue, operating income or assets of the
Company and its subsidiaries, taken as a whole, or 20% or more of the
outstanding shares of Company Common Stock or of any class of capital stock or
other equity or voting interests in any of its subsidiaries, (ii) any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of the voting power of Company Common Stock or
(iii) any merger, consolidation, share exchange (as defined in ORS 60.484),
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Parent or Sub, the adoption, approval or recommendation by
such Board of Directors or any such committee of this Agreement or the Merger,
(ii) adopt, approve or recommend, or publicly propose to adopt, approve or
recommend, any Takeover Proposal or (iii) cause or agree to cause the Company to
enter into any letter of intent, memorandum of understanding, agreement in
principle, acquisition agreement, merger agreement or other agreement (each, an
"Acquisition Agreement") constituting or related to, or which is intended to or
is reasonably likely to lead to, any Takeover Proposal (other than a
confidentiality agreement referred to in Section 4.02(a) entered into under the
circumstances referred to in such Section 4.02(a)). Notwithstanding the
foregoing, if, at any time prior to obtaining the Shareholder Approval, the
Board of Directors of the Company determines in good faith, after consultation
with outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareholders under applicable law, the Board
of Directors of the Company may, in response to a Superior Proposal that was
unsolicited and that did not otherwise result from a breach of Section 4.02(a),
cause the Company to terminate this Agreement if, and only if, the Company shall
concurrently with such termination enter into a definitive Acquisition Agreement
containing the terms of a Superior Proposal; PROVIDED, HOWEVER, that the Company
shall not terminate this Agreement pursuant to this Section 4.02(b), and any
purported termination pursuant to this Section 4.02(b) shall be void and of no
force or effect, unless the Company shall have complied with all the provisions
of this Section 4.02, including the notification provisions in this Section
4.02, and with all applicable requirements of Section 5.06(b), including the
payment of the Termination Fee (as defined in Section 5.06(b)) prior to such
termination; and PROVIDED FURTHER, HOWEVER, that the Company shall not exercise
its right to terminate this Agreement pursuant to Section 4.02(b) until after
the fifth business day (the "Match Period Expiration Date") following Parent's
receipt of written notice (a "Notice of Superior Proposal") advising Parent that
the Board of Directors of the Company has received a Superior Proposal and that
such Board of Directors will, subject to any action taken by Parent pursuant to
this sentence, cause the Company to accept such Superior Proposal, specifying
the material terms and conditions of the Superior Proposal and identifying the
person making such Superior Proposal (it being understood and agreed that any
amendment to the price or any other material term of a Superior Proposal shall
require an additional Notice of Superior Proposal and, if the Match Period
Expiration Date would otherwise occur less than two business days from the date
of such Notice of Superior Proposal relating to such amendment, the Match Period
Expiration Date shall be extended until two business days after the receipt of
such Notice of Superior Proposal).
For purposes of this Agreement, a "Superior Proposal" means any bona fide
proposal made by a third party which would result in such third party (or in the
case of a direct merger between such third party and the Company, the
shareholders of such third party) acquiring, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, share
exchange (as defined in ORS 60.484), business combination, share purchase, asset
purchase, recapitalization, liquidation, dissolution or similar transaction,
more than 50% of the voting power of the Company Common Stock or all or
substantially all the assets of the Company and its subsidiaries, taken as a
whole, for
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consideration consisting of cash and/or securities that the Board of Directors
of the Company determines in its good faith judgment (after consultation with a
financial advisor of nationally recognized reputation) to have a higher value
than the consideration payable in the Merger and which proposal is determined in
good faith by the Board of Directors of the Company to be more favorable to the
Company's shareholders than the Merger, in each case taking into account any
changes to the terms of this Agreement proposed by Parent in response to such
Superior Proposal or otherwise.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 4.02, the Company promptly shall advise Parent
orally and in writing of any request for information that the Company reasonably
believes could lead to a Takeover Proposal or of any Takeover Proposal, or any
inquiry the Company reasonably believes could lead to any Takeover Proposal, the
terms and conditions of such request, Takeover Proposal or inquiry, including
any subsequent amendment or other modification to such terms and conditions, and
the identity of the person making any such request, Takeover Proposal or
inquiry. On a daily basis, the Company will confer with Parent regarding (i) the
progress of negotiations concerning any Takeover Proposal, the material resolved
and unresolved issues related thereto and any other matters identified with
reasonable specificity by Parent and (ii) the material details (including
material amendments or proposed amendments as to price and other material terms)
of any such request, Takeover Proposal or inquiry.
(d) Nothing contained in this Section 4.02 or elsewhere in this Agreement
shall prohibit the Company from (i) taking and disclosing to its shareholders a
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or
(ii) making any disclosure to the Company's shareholders if, in the good faith
judgment of a majority of the members of the Board of Directors of the Company,
after consultation with outside counsel, failure so to disclose would be
inconsistent with applicable laws; PROVIDED that none of the Company nor its
Board of Directors nor any committee thereof shall withdraw or modify, or
publicly propose to withdraw or modify, its position with respect to this
Agreement or the Merger or approve or recommend, or propose to approve or
recommend, a Takeover Proposal (it being understood that disclosure of the
delivery of a Notice of Superior Proposal (as contemplated by Section 4.02(b))
shall not violate this Section 4.02(d) or any other provision of this
Agreement).
SECTION 4.03. CONDUCT BY PARENT. During the period from the date of this
Agreement to the Effective Time, except as consented to in writing by the
Company or as specifically contemplated by this Agreement, Parent shall not, and
shall not permit any of its subsidiaries to, take any action that would or is
reasonably likely to result in (i) any representation and warranty of Parent set
forth in this Agreement that is qualified as to materiality becoming untrue,
(ii) any such representation and warranty that is not so qualified becoming
untrue in any material respect or (iii) any condition to the Merger set forth in
Article VI not being satisfied.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. PREPARATION OF THE PROXY STATEMENT; SHAREHOLDERS
MEETING. (a) As promptly as practicable following the date of this Agreement,
the Company shall prepare and file with the SEC the Proxy Statement and the
Company shall use its reasonable best efforts to respond as promptly as
practicable to any comments of the SEC with respect thereto and to cause the
Proxy Statement to be mailed to the Company's shareholders as promptly as
practicable following the date of this Agreement. Parent shall furnish to the
Company all information concerning itself as may be reasonably requested in
connection with the preparation, filing and distribution of the Proxy Statement.
The Company shall promptly notify Parent upon the receipt of any comments from
the SEC or its staff or any request from the SEC or its staff for amendments or
supplements to the Proxy Statement and shall provide Parent
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with copies of all correspondence between the Company and its representatives,
on the one hand, and the SEC and its staff, on the other hand. Notwithstanding
anything to the contrary stated above, prior to filing or mailing the Proxy
Statement (or any amendment or supplement thereto) or responding to any comments
of the SEC with respect thereto, the Company (i) shall provide Parent an
opportunity to review, comment on and approve such document or response, (ii)
shall include in such document or response all comments reasonably proposed by
Parent and (iii) and shall not file or mail such document or respond to the SEC
prior to receiving Parent's approval, which approval shall not be unreasonably
withheld or delayed.
(b) The Company shall, as promptly as practicable following the date of this
Agreement, establish a record date (which will be as promptly as practicable
following the date of this Agreement) for, duly call, give notice of, convene
and hold a meeting of its shareholders (the "Shareholders Meeting") for the
purpose of obtaining the Shareholder Approval. The Company shall, through its
Board of Directors, recommend to its shareholders that they approve this
Agreement, and shall include such recommendation in the Proxy Statement. Without
limiting the generality of the foregoing, the Company agrees that its
obligations pursuant to this Section 5.01(b) shall not be affected by the
commencement, public proposal, public disclosure or communication to the Company
or any other person of any Takeover Proposal.
SECTION 5.02. ACCESS TO INFORMATION; CONFIDENTIALITY. The Company shall,
and shall cause each of its subsidiaries to, afford to Parent, and to Parent's
officers, employees, investment bankers, attorneys, accountants and other
advisors and representatives, reasonable access during normal business hours
during the period prior to the Effective Time or the termination of this
Agreement to all their respective properties, books, contracts, commitments,
directors, officers, attorneys, accountants, auditors (and, to the extent within
the Company's control, former auditors), other advisors and representatives and
records and, during such period, the Company shall, and shall cause each of its
subsidiaries to, make available to Parent (a) a copy of each report, schedule,
form, statement and other document filed or received by it during such period
pursuant to the requirements of Federal, state, local or foreign laws and (b)
all other information concerning its business, properties and personnel as
Parent may reasonably request (including the work papers of Deloitte & Touche
LLP and PriceWaterhouseCoopers LLP); PROVIDED, HOWEVER, that the foregoing shall
not entitle Parent or its officers, employees, investment bankers, attorneys,
accountants or other advisors and representatives to have access to any patent
application of the Company or any of its subsidiaries. Except as required by
law, Parent will hold, and will direct its officers, employees, investment
bankers, attorneys, accountants and other advisors and representatives to hold,
any and all information received from the Company, directly or indirectly, in
confidence in accordance with the Confidentiality Agreement.
SECTION 5.03. REASONABLE BEST EFFORTS; NOTIFICATION. (a) Upon the terms
and subject to the conditions set forth in this Agreement, each of the parties
agrees to use its reasonable best efforts to take, or cause to be taken, all
actions, that are necessary, proper or advisable to consummate and make
effective the Merger and the other transactions contemplated by this Agreement,
including using its reasonable best efforts to accomplish the following: (i) the
taking of all reasonable acts necessary to cause the conditions precedent set
forth in Article VI to be satisfied, (ii) the obtaining of all necessary actions
or nonactions, waivers, consents, approvals, orders and authorizations from
Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any), (iii) the taking of all reasonable steps as may
be necessary to avoid any suit, claim, action, investigation or proceeding by
any Governmental Entity and (iv) the obtaining of all necessary consents,
approvals or waivers from third parties. In connection with and without limiting
the foregoing, the Company and its Board of Directors shall, if any state
takeover statute or similar statute or regulation is or becomes applicable to
this Agreement, the Merger or any of the other transactions contemplated by this
Agreement, use its reasonable best efforts to ensure that the Merger and the
other transactions contemplated by this Agreement may be
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consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the other transactions contemplated by this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, in no event shall any party hereto be obligated to
(A) agree to, or proffer to, divest or hold separate, or enter into any
licensing or similar arrangement with respect to, any assets (whether tangible
or intangible) or any portion of any business of Parent, the Company or any of
their respective subsidiaries or (B) litigate any suit, claim, action,
investigation or proceeding, whether judicial or administrative, (1) challenging
or seeking to restrain or prohibit the consummation of the Merger; (2) seeking
to prohibit or limit in any material respect the ownership or operation by the
Company, Parent or any of their respective affiliates of a material portion of
the business or assets of the Company and its subsidiaries, taken as a whole, or
Parent and its subsidiaries, taken as a whole, or to require any such person to
dispose of or hold separate any material portion of the business or assets of
the Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as a result of the Merger; or (3) seeking to
prohibit Parent or any of its affiliates from effectively controlling in any
material respect a substantial portion of the business or operations of the
Company or its subsidiaries. The Company and Parent will provide such
assistance, information and cooperation to each other as is reasonably required
to obtain any such nonactions, waivers, consents, approvals, orders and
authorizations and, in connection therewith, will notify the other person
promptly following the receipt of any comments from any Governmental Entity and
of any request by any Governmental Entity for amendments, supplements or
additional information in respect of any registration, declaration or filing
with such Governmental Entity and will supply the other person with copies of
all correspondence between such person or any of its representatives, on the one
hand, and any Governmental Entity, on the other hand.
(b) The Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate
such that the condition set forth in Section 6.02(a) would not be satisfied;
PROVIDED, HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to the Company of any representation or
warranty made by it or Sub contained in this Agreement becoming untrue or
inaccurate such that the condition set forth in Section 6.03(a) would not be
satisfied; PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(d) Without limiting the generality of the foregoing, the Company shall give
Parent the opportunity to participate in the defense of any litigation against
the Company and/or its directors relating to the transactions contemplated by
this Agreement, it being understood and agreed that this Section 5.03(d) shall
not give Parent the right to direct such defense.
SECTION 5.04. STOCK OPTIONS. (a) As soon as practicable following the date
of this Agreement, the Board of Directors of the Company (or, if appropriate,
any committee administering the Company Stock Plans) shall adopt such
resolutions or take such other actions (if any) as may be required to effect the
following:
(i) each Stock Option outstanding immediately prior to the Effective
Time shall be converted into an option to acquire, on the same terms and
conditions as were applicable under the Stock Option, the number of shares
of Parent common stock, par value $0.50 per share ("Parent Common Stock")
(rounded down to the nearest whole share) determined by multiplying the
number of shares of Company Common Stock subject to such Stock Option by a
fraction (the "Option Exchange Ratio"), the numerator of which is the Merger
Consideration and the denominator of which is the average closing price of
Parent Common Stock on the New York
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Stock Exchange Composite Transactions Tape on the ten trading days
immediately preceding the date on which the Effective Time occurs at an
exercise price per share of Parent Common Stock equal to (1) the per share
exercise price for the shares of Company Common Stock otherwise purchasable
pursuant to such Stock Option divided by (2) the Option Exchange Ratio
(each, as so adjusted, an "Adjusted Option"), PROVIDED that such exercise
price shall be rounded up to the nearest whole cent; PROVIDED, HOWEVER, that
(x) each holder of a Stock Option issued under the 1989 Stock Incentive Plan
or the 1995 Stock Incentive Plan may, for a period of 30 days following the
receipt of Shareholder Approval, elect to receive a cash payment in
cancellation of such Stock Option in accordance with the terms of such
Company Stock Plan and (y) each holder of a Stock Option issued under the
1987 Employee Stock Option Plan, the 1996 Stock Option Plan or the 1997
Stock Option Plan may elect to have any Stock Option owned by such holder
converted immediately following the Effect Time into the right to receive an
amount of cash equal to (1) the product of (x) the number of shares of
Company Common Stock subject to such Stock Option and (y) the Merger
Consideration, minus (2) the product of (x) the number of shares of Company
Common Stock subject to such Stock Option and (y) the per share exercise
price of such Stock Option; and
(ii) make such other changes to the Company Stock Plans as Parent and
the Company may agree are appropriate to give effect to the Merger.
(b) The adjustments provided herein with respect to any Stock Options that
are "incentive stock options" as defined in Section 422 of the Code shall be and
are intended to be effected in a manner which is consistent with Section 424(a)
of the Code.
(c) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, Parent shall assume the Company Stock Plans, with
the result that all obligations of the Company under the Company Stock Plans,
including with respect to Stock Options outstanding at the Effective Time, shall
be obligations of Parent following the Effective Time.
(d) Prior to the Effective Time, Parent shall prepare and file with the SEC
a registration statement on Form S-8 (or another appropriate form) registering a
number of shares of Parent Common Stock equal to the number of shares subject to
the Adjusted Options. Such registration statement shall be kept effective (and
the current status of the prospectus or prospectuses required thereby shall be
maintained) as long as any Adjusted Options may remain outstanding.
(e) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Stock Options appropriate notices setting forth such holders'
rights pursuant to the respective Company Stock Plans and the agreements
evidencing the grants of such Stock Options and that such Stock Options and
agreements shall be assumed by Parent and shall continue in effect on the same
terms and conditions (subject to the adjustments and vesting acceleration
required by this Section 5.04 after giving effect to the Merger).
(f) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly executed
notice of exercise to Parent, together with the consideration therefor and the
Federal withholding tax information, if any, required in accordance with the
related Company Stock Plan.
SECTION 5.05. INDEMNIFICATION, EXCULPATION AND INSURANCE. (a) Parent and
Sub agree that all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time (and rights
for advancement of expenses) now existing in favor of the current or former
directors or officers of the Company and its subsidiaries as provided in their
respective articles of incorporation or by-laws (or comparable organizational
documents) and any indemnification or other agreements of the Company as in
effect on the date hereof shall be assumed by the Surviving
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Corporation in the Merger, without further action, at the Effective Time and
shall survive the Merger and shall continue in full force and effect in
accordance with their terms.
(b) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all its properties and assets to
any person, then, and in each such case, Parent shall cause proper provision to
be made so that the successors and assigns of the Surviving Corporation assume
the obligations set forth in this Section 5.05.
(c) For six years after the Effective Time, Parent shall maintain in effect
the Company's current directors' and officers' liability insurance covering each
person currently covered by the Company's directors' and officers' liability
insurance policy for acts or omissions occurring prior to the Effective Time on
terms with respect to such coverage and amounts no less favorable than those of
such policy in effect on the date hereof; PROVIDED that Parent may substitute
therefor policies of a reputable insurance company the material terms of which,
including coverage and amount, are no less favorable to such directors and
officers than the insurance coverage otherwise required under this Section
5.05(c); PROVIDED HOWEVER, that in no event shall Parent be required to pay
aggregate premiums for insurance under this Section 5.05(c) in excess of 150% of
the amount of the aggregate premiums paid by the Company in 1998 on an
annualized basis for such purpose (which 1998 annualized premiums are hereby
represented and warranted by the Company to be $192,000), PROVIDED that Parent
shall nevertheless be obligated to provide such coverage as may be obtained for
such 150% amount.
(d) The provisions of this Section 5.05 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.06. FEES AND EXPENSES. (a) All fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
(b) In the event that (i) (A) a Takeover Proposal shall have been made known
to the Company or has been made directly to its shareholders or any person has
announced an intention (whether or not conditional) to make a Takeover Proposal,
(B) thereafter this Agreement is terminated by either Parent or the Company
pursuant to Section 7.01(b)(i) (but only if the Shareholders Meeting has not
been held by the date that is five business days prior to the date of such
termination) or 7.01(b)(iii) and (C) within 12 months after such termination,
the Company or any of its subsidiaries enters into any Acquisition Agreement
with respect to, or consummates, any Takeover Proposal (solely for purposes of
this Section 5.06(b)(i)(C), the term "Takeover Proposal" shall have the meaning
set forth in clauses (i), (ii) and (iii) of such definition in Section 4.02(a)
except that (I) all references to 20% shall be deemed references to 40%, (II)
the reference in such definition to capital stock or other voting or equity
interests of the subsidiaries of the Company shall be disregarded and (III) the
reference to subsidiaries in clause (iii) of such definition shall be
disregarded except with respect to transactions including subsidiaries which
would have any of the effects set forth in clause (i) of such definition), (ii)
this Agreement is terminated by the Company pursuant to Section 4.02(b) or (iii)
this Agreement is terminated by Parent pursuant to Section 7.01(c), then the
Company shall pay Parent a fee equal to $25 million (the "Termination Fee") by
wire transfer of same day funds (1) in the case of a termination pursuant to
Section 4.02(b), prior to such termination, (2) in the case of a termination
pursuant to Section 7.01(c), within two days after such termination and (3) in
the case of a payment as a result of any event referred to in Section
5.06(b)(i)(C), upon the first to occur of such events. The Company acknowledges
that the agreements contained in this Section 5.06(b) are an integral part of
the transactions contemplated by this Agreement, and that, without these
agreements, Parent would not
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enter into this Agreement; accordingly, if the Company fails promptly to pay the
amounts due pursuant to this Section 5.06(b), and, in order to obtain such
payment, Parent commences a suit that results in a judgment against the Company
for the amounts set forth in this Section 5.06(b), the Company shall pay to
Parent its reasonable costs and expenses (including attorneys' fees and
expenses) in connection with such suit and any appeal relating thereto, together
with interest on the amounts set forth in this Section 5.06(b) at the prime rate
of Citibank, N.A. in effect on the date such payment was required to be made.
SECTION 5.07. BENEFITS MATTERS. (a) The Company shall take all necessary
actions so that as of the Effective Time, no former or current director, officer
or employee of DP Applications, in his or her capacity as such, shall be
entitled actively to participate in any employee welfare benefit plan, employee
pension benefit plan or other Benefit Plan of the Company.
(b) Following the Effective Time, the Surviving Corporation shall honor, or
cause to be honored, all obligations under employment agreements and Benefit
Plans of the Company in accordance with the terms thereof. Nothing herein shall
be construed to prohibit the Surviving Corporation from amending or terminating
such agreements and Benefit Plans in accordance with the terms thereof and with
applicable law.
(c) The Company shall amend the ESPP on the date of this Agreement to
provide that (i) participation in the ESPP shall be limited to those employees
who were participants on June 9, 1999, (ii) such participants may not increase
their payroll deductions or purchase elections from those in effect on June 9,
1999, (iii) no offering periods shall be commenced after the date of this
Agreement, (iv) an additional Purchase Date (as defined in the ESPP) shall be
set by the Board of Directors of the Company, which additional Purchase Date
shall be the trading day immediately prior to the day on which the Effective
Time shall occur (the "Final Purchase Date") and (v) immediately following the
purchase of Company Common Stock on the Final Purchase Date, the ESPP shall
terminate.
SECTION 5.08. PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and
the Company, on the other hand, will, to the extent reasonably practicable,
consult with each other before issuing, and give each other a reasonable
opportunity to review and comment upon, any press release or other public
statements with respect to this Agreement, the Merger and the other transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or national securities
quotation system. The parties agree that the initial press release to be issued
with respect to the transactions contemplated by this Agreement shall be in the
form heretofore agreed to by the parties.
SECTION 5.09. RIGHTS AGREEMENT. The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section
3.01(w)) reasonably requested in writing by Parent in order to render the Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement to the extent provided herein. Except as provided above with respect
to the Merger and the other transactions contemplated hereby, the Board of
Directors of the Company shall not, without the written consent of Parent (a)
amend the Rights Agreement or (b) take any action with respect to, or make any
determination under, the Rights Agreement, including a redemption of the rights
or any action to facilitate a Takeover Proposal.
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) SHAREHOLDER APPROVAL. The Shareholder Approval shall have been
obtained.
(b) ANTITRUST. Any waiting period (and any extension thereof)
applicable to the Merger under the HSR Act or any other applicable
competition, merger control, antitrust or similar law shall have been
terminated or shall have expired.
(c) NO INJUNCTIONS OR LEGAL RESTRAINTS. No temporary restraining
order, preliminary or permanent injunction or other order or decree issued
by any court of competent jurisdiction or other legal restraint or
prohibition (collectively, "Legal Restraints") which has the effect of
preventing the consummation of the Merger shall be in effect.
SECTION 6.02. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The obligations
of Parent and Sub to effect the Merger are further subject to the satisfaction
or waiver on or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained herein that are qualified as to materiality shall
be true and correct (as so qualified), and the representations and
warranties of the Company contained herein that are not so qualified shall
be true and correct in all material respects, in each case as of the date of
this Agreement and as of the Closing Date with the same effect as though
made as of the Closing Date except that the accuracy of representations and
warranties that by their terms speak as of a specified date will be
determined as of such date. Parent shall have received a certificate signed
on behalf of the Company by the chief executive officer and chief financial
officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to such
effect.
(c) NO LITIGATION. There shall not be pending any suit, action or
proceeding brought by any Governmental Entity, or any suit, action or
proceeding with a reasonable possibility of success brought by any other
third party (in the case of any such other third party, excluding suits,
actions and proceedings based upon state law fiduciary duty claims related
to the transactions contemplated by this Agreement), (i) challenging or
seeking to restrain or prohibit the consummation of the Merger; or (ii)
seeking to prohibit or limit in any material respect the ownership or
operation by the Company, Parent or any of their respective affiliates of a
material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a
whole, or to require any such person to dispose of or hold separate any
material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a
whole, as a result of the Merger; or (iii) seeking to prohibit Parent or any
of its affiliates from effectively controlling in any material respect a
substantial portion of the business or operations of the Company or its
subsidiaries.
(d) LEGAL RESTRAINT. No Legal Restraint that could reasonably be
expected to result, directly or indirectly, in any of the effects referred
to in clauses (i) through (iii) of paragraph (c) of this Section 6.02 shall
be in effect.
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(e) CONSENTS. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that Parent or the Company shall
have obtained (i) all material consents, approvals, authorizations,
qualifications and orders of all Governmental Entities legally required to
effect the Merger, (ii) all other consents, approvals, authorizations,
qualifications and orders of Governmental Entities or third parties required
in connection with this Agreement and the transactions contemplated by this
Agreement, except, in the case of this clause (ii), for those the failure of
which to be obtained individually or in the aggregate are not reasonably
likely to have a material adverse effect on the Company, and (iii) the
consents, approvals and waivers referred to on Schedule 6.02(e) of the
Company Disclosure Schedule.
(f) WARRANTS. The Company shall have no Warrants outstanding.
SECTION 6.03. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of
the Company to effect the Merger is further subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Sub contained herein that are qualified as to materiality
shall be true and correct (as so qualified), and the representations and
warranties of Parent contained herein that are not so qualified shall be
true and correct in all material respects, in each case as of the date of
this Agreement and as of the Closing Date with the same effect as though
made as of the Closing Date except that the accuracy of representations and
warranties that by their terms speak as of a specified date will be
determined as of such date. The Company shall have received a certificate
signed on behalf of Parent by an authorized signatory of Parent to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
an authorized signatory of Parent to such effect.
SECTION 6.04. FRUSTRATION OF CLOSING CONDITIONS. None of the Company,
Parent or Sub may rely on the failure of any condition set forth in Section
6.01, 6.02 or 6.03, as the case may be, to be satisfied if such failure was
caused by such party's failure to use reasonable best efforts to consummate the
Merger and the other transactions contemplated by this Agreement, as required by
and subject to Section 5.03.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. TERMINATION. This Agreement may be terminated, and the
Merger contemplated hereby may be abandoned, at any time prior to the Effective
Time, whether before or after the Shareholder Approval has been obtained:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated by April 30, 2000 for
any reason; PROVIDED, HOWEVER, that the right to terminate this Agreement
under this Section 7.01(b)(i) shall not be available to any party whose
action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
(ii) if any Legal Restraint having the effect set forth in Section
6.01(c) shall be in effect and shall have become final and nonappealable; or
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(iii) if the Shareholder Approval shall not have been obtained at the
Shareholders Meeting duly convened therefor or at any adjournment or
postponement thereof; or
(c) by Parent if the Board of Directors of the Company or any committee
thereof shall have failed to reconfirm its recommendation referred to in Section
5.01(b) within ten business days (a "Reconfirmation Period") after a written
request to do so, PROVIDED that such request is made following the making of a
Takeover Proposal; and PROVIDED, FURTHER, that if during such Reconfirmation
Period the Company delivers to Parent a Notice of Superior Proposal, then such
Reconfirmation Period shall not expire prior to the Match Period Expiration Date
(including any extension thereof) related to such Notice of Superior Proposal.
(d) by Parent (i) if the Company shall have breached in any material respect
any of its representations, warranties, covenants or other agreements contained
in this Agreement, which breach or failure to perform (A) would give rise to the
failure of a condition set forth in Section 6.02(a) or 6.02(b), and (B) has not
been or is incapable of being cured by the Company within 30 business days after
its receipt of written notice thereof from Parent; or (ii) if any Legal
Restraint having any of the effects referred to in clauses (i) through (iii) of
Section 6.02(c) shall be in effect and shall have become final and
nonapplicable;
(e) by the Company, if Parent shall have breached in any material respect
any of its representations, warranties, covenants or other agreements contained
in this Agreement, which breach or failure to perform (i) would give rise to the
failure of a condition set forth in Section 6.03(a) or 6.03(b), and (ii) has not
been or is incapable of being cured by Parent within 30 business days after its
receipt of written notice thereof from the Company;
(f) by the Company, in accordance with, and subject to the terms and
conditions of, Section 4.02(b).
SECTION 7.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than the
provisions of Section 3.01(u), the last sentence of Section 5.02, Section 5.06,
this Section 7.02 and Article VIII and except to the extent that such
termination results from a willful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 7.03. AMENDMENT. This Agreement may be amended by the parties
hereto at any time, whether before or after the Shareholder Approval has been
obtained; PROVIDED, HOWEVER, that after the Shareholder Approval has been
obtained, there shall be made no amendment that by law requires further approval
by shareholders of the parties without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 7.04. EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or conditions
contained herein; PROVIDED, HOWEVER, that after the Shareholder Approval has
been obtained, there shall be made no waiver that by law requires further
approval by shareholders of the parties without the further approval of such
shareholders. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure or delay by any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights nor shall any single or partial exercise by any party to
this
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<PAGE>
Agreement of any of its rights under this Agreement preclude any other or
further exercise of such rights or any other rights under this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.02. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
if to Parent or Sub, to:
International Business Machines Corporation
New Orchard Road
Armonk, NY 10504
Attention: Mr. Lee A. Dayton
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Allen Finkelson, Esq.
Scott A. Barshay, Esq.
if to the Company, to:
Sequent Computer Systems, Inc.
15450 S.W. Koll Parkway
Beaverton, OR 97006
Attention: Mr. Robert S. Gregg
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Larry Sonsini, Esq.
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<PAGE>
SECTION 8.03. DEFINITIONS. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) as it relates to the Company, "knowledge" means, with respect to any
matter in question, that any of the chief executive officer, chief financial
officer or any other executive officer of the Company has actual knowledge
of such matter.
(c) "material adverse effect" means any state of facts, change,
development, effect or occurrence that is materially adverse to the
business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, other than any state of
facts, change, effect or occurrence principally attributable to (i) the
economy in general or the Company's industry in general and not specifically
relating to the Company or any of its Subsidiaries (ii) any securities class
action litigation against the Company arising out of the transactions
contemplated hereby or (iii) a shortfall in the revenues of the Company and
its subsidiaries, taken as a whole, that results from delays of customer
orders attributable to the announcement of the Merger;
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(e) a "subsidiary" of any person means another person of which more than
50% of any class of capital stock, voting securities or other equity
interests are owned or controlled, directly or indirectly, by such first
person; PROVIDED, HOWEVER, that, for purposes of this Agreement, DP
Applications shall not be a subsidiary of Parent.
SECTION 8.04. INTERPRETATION. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 8.05. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.06. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (a) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and (b) except for the
provisions of Section 5.05, are not intended to confer upon any person other
than the parties hereto any rights or remedies.
SECTION 8.07. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except to the extent the laws of the State of Oregon are
mandatorily applicable to the Merger.
SECTION 8.08. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Sub of any of
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its obligations hereunder. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the parties
and their respective successors and assigns.
SECTION 8.09. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the partes shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or the State of Oregon or in any New York state
court or any Oregon state court, this being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any court
of the United States located in the State of New York or the State of Oregon or
of any New York state court or any Oregon state court in the event any dispute
arises out of this Agreement or the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Agreement or the transactions
contemplated by this Agreement in any court other than a court of the United
States located in the State of New York or the State of Oregon or a New York
state court or an Oregon state court.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
<TABLE>
<S> <C>
INTERNATIONAL BUSINESS MACHINES
CORPORATION,
By LEE A. DAYTON
-------------------------
Name: Lee A. Dayton
Title: Vice President,
Corporate Development and
Real Estate
PATHFINDER ACQUISITION CORP.,
By LEE A. DAYTON
-------------------------
Name: Lee A. Dayton
Title: Vice President,
Corporate Development and
Real Estate
SEQUENT COMPUTER SYSTEMS, INC.,
By KARL C. POWELL, JR.
-------------------------
Name: Karl C. Powell, Jr.
Title: Chairman and Chief
Executive Officer
</TABLE>
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<PAGE>
EXHIBIT A
PLAN OF MERGER
OF
PATHFINDER ACQUISITION CORP.
WITH AND INTO SEQUENT COMPUTER SYSTEMS, INC.
1. PARTIES.
(a) The name of the surviving corporation is Sequent Computer Systems,
Inc., an Oregon corporation ("Sequent").
(b) The name of the corporation merging with and into the surviving
corporation is Pathfinder Acquisition Corp., an Oregon corporation ("PAC").
2. THE MERGER. The Merger (as defined below) shall become effective when
this Plan of Merger and Articles of Merger are filed with the Secretary of State
of the State of Oregon (the "Effective Time"). In accordance with the provisions
of this Plan of Merger and the applicable provisions of the Oregon Business
Corporation Act, PAC shall be merged with and into Sequent (the "Merger"), and
Sequent shall continue as the surviving corporation (the "Surviving
Corporation"). Thereupon the separate corporate existence of PAC shall cease,
and the Surviving Corporation shall continue in existence under the laws of the
State of Oregon. The Merger shall have the effects set forth in ORS 60.497.
3. CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any shares of Common
Stock, par value $0.01 per share, of Sequent (together with the associated
rights to purchase shares of Series A Preferred Stock issued pursuant to the
Rights Agreement dated as of April 14, 1998 between Sequent and ChaseMellon
Shareholder Services L.L.C., the "Sequent Common Stock"), or any shares of
capital stock of PAC:
(a) CAPITAL STOCK OF PAC. Each issued and outstanding share of common
stock of PAC shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND OTHER STOCK. All shares of
Sequent Common Stock that are owned by Sequent, as treasury stock,
International Business Machines Corporation or PAC immediately prior to the
Effective Time shall automatically be canceled and retired and shall cease
to exist and no consideration shall be delivered in exchange therefor.
(c) CONVERSION OF SEQUENT COMMON STOCK. Each share of Sequent Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be canceled in accordance with Section 3(b) of this Plan of
Merger) shall be converted into the right to receive $18 in cash, without
interest (the "Merger Consideration"). At the Effective Time all such shares
shall no longer be outstanding and shall automatically be canceled and shall
cease to exist, and each holder of a certificate that immediately prior to
the Effective Time represented any such shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration. The right of any holder of any share of Sequent Common Stock
to receive the Merger Consideration shall be subject to and reduced by the
amount of any withholding that is required under applicable tax law.
4. ARTICLES OF INCORPORATION AND BYLAWS OF SURVIVING COMPANY. (a) The
Articles of Incorporation of PAC, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law, except that Article I of the Articles of Incorporation of the
Surviving Corporation shall be amended to read in its entirety as follows: "The
name of the corporation (hereinafter called the
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"Corporation") is Sequent Computer Corporation." A copy of the Articles of
Incorporation, as amended, of the Surviving Corporation is attached as Exhibit
1.
(b) The Bylaws of PAC as in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
5. DIRECTORS. The directors of PAC immediately prior to the Effective Time
shall be the directors of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
6. OFFICERS. The officers of the PAC immediately prior to the Effective Time
shall be the officers of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
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<PAGE>
EXHIBIT 1
ARTICLES OF INCORPORATION OF
SEQUENT COMPUTER SYSTEMS, INC., AS AMENDED FOLLOWING
MERGER OF PATHFINDER ACQUISITION CORP. INTO SEQUENT COMPUTER
SYSTEMS, INC.
ARTICLE I
NAME
The name of the corporation (hereinafter called the "corporation") is
Sequent Computer Systems, Inc.
ARTICLE II
SHARES
The total number of shares of stock which the corporation shall have
authority to issue is 1,000, with a par value of $.01 per share. All such shares
are of one class, Common Stock, and shall have identical rights and privileges
in every respect.
ARTICLE III
REGISTERED OFFICE AND AGENT
The address including street and number of the initial registered office of
the corporation in the State of Oregon is: 3500 U.S. Bancorp Tower, 111 SW Fifth
Avenue, Portland, Oregon 97204-3699; and the name of the initial registered
agent of the corporation at such address is MN Service Corporation (Oregon).
ARTICLE IV
INCORPORATOR
The name and the mailing address of the incorporator are as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
- ------------------------------------ ------------------------------------
<S> <C>
Michael E. Arthur 3500 U.S. Bancorp Tower
111 SW Fifth Avenue
Portland, Oregon 97204-3699
</TABLE>
ARTICLE V
NOTICES
The address to which notices, as required by the Oregon Business Corporation
Act, may be mailed until the principal office of the corporation has been
designated by the corporation in its annual report is:
3500 U.S. Bancorp Tower
111 SW Fifth Avenue
Portland, Oregon 97204-3699
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<PAGE>
ARTICLE VI
PURPOSES AND POWERS
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the Oregon Business Corporation
Act.
ARTICLE VII
ELIMINATION OF LIABILITY
Directors of the Corporation shall not be liable to the Corporation or its
shareholders for monetary damages for conduct as directors except to the extent
that the Oregon Business Corporation Act, as it now exists or may hereafter be
amended, prohibits elimination or limitation of director liability. No repeal or
amendment of this article or of the Oregon Business Corporation Act shall
adversely affect any right or protection of a director for actions or omissions
prior to the repeal or amendment.
ARTICLE VIII
INDEMNIFICATION
The corporation shall indemnify each of its directors to the fullest extent
permissible under the Oregon Business Corporation Act, as the same exists or may
hereafter be amended, against all expense, liability, and loss (including,
without limitation, attorneys' fees) incurred or suffered by such person by
reason of or arising from the fact that such person is or was a director of the
corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, and such indemnification shall continue as to a person who
has ceased to be a director, officer, partner, trustee, employee, or agent and
shall inure to the benefit of his or her heirs, executors, and administrators.
The corporation may, by action of the board of directors, provide
indemnification to officers, employees, and agents of the corporation who are
not directors with the same scope and effect as the indemnification provided in
this Article to directors. The indemnification provided in this Article shall
not be exclusive of any other rights to which any person may be entitled under
any statute, bylaw, agreement, resolution of shareholders or directors, contract
or otherwise.
ARTICLE IX
AMENDMENT
From time to time any of the provisions of these Articles of Incorporation
may be amended, altered, or repealed, and other provisions authorized by the
laws of the State of Oregon at the time in force may be added or inserted in the
manner and at the time prescribed by said laws, and all rights at any time
conferred upon the shareholders of the corporation by these Articles of
Incorporation are granted subject to the provisions of this Article NINTH.
A-41
<PAGE>
APPENDIX B
MORGAN STANLEY DEAN WITTER
2725 SAND HILL ROAD
BUILDING C--SUITE 200
MENLO PARK, CALIFORNIA
94025
(650) 234-5500
July 11, 1999
Board of Directors
Sequent Computer Systems, Inc.
15450 S.W. Koll Parkway
Beaverton, OR 97006-6063
Members of the Board:
We understand that Sequent Computer Systems, Inc. ("Sequent" or the
"Company"), International Business Machines Corporation ("IBM") and Acquisition
Inc., a wholly owned subsidiary of IBM ("Acquisition Sub"), propose to enter
into an Agreement and Plan of Merger substantially in the form of the draft,
dated July 10, 1999 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Acquisition Sub with and into Sequent,
and Sequent will be the surviving corporation and become a wholly owned
subsidiary of IBM. Pursuant to the Merger, each outstanding share of common
stock, par value $0.01 per share (the "Common Stock") of Sequent (together with
the associated Rights (as defined in the Merger Agreement)), other than shares
held in treasury or held by IBM or Acquisition Sub or as to which dissenters'
rights have been perfected, will be converted into the right to receive $18 per
share in cash. The terms and conditions of the Merger are more fully set forth
in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to holders of shares of Common
Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
business and financial information of Sequent;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Sequent prepared by the management of
Sequent;
(iii) analyzed certain financial projections prepared by the management of
Sequent;
(iv) discussed the past and current operations and financial condition and
the prospects of Sequent, including information relating to certain
strategic, financial and operational benefits anticipated from the
Merger with senior executives of Sequent;
(v) reviewed the reported prices and trading activity for the Common Stock;
(vi) compared the financial performance of Sequent and the prices and
trading activity of the Common Stock with that of certain other
publicly-traded companies comparable with Sequent and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
B-1
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MORGAN STANLEY DEAN WITTER
Board of Directors
July 11, 1999
Page 2
(viii) participated in discussions and negotiations among representatives of
Sequent and IBM and their financial and legal advisors;
(ix) reviewed the draft Merger Agreement and certain related documents;
(x) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information supplied or otherwise made
available to us by Sequent for the purposes of this opinion. With respect to the
financial projections, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Sequent. We have relied upon, without
independent verification, the assessment by the management of Sequent of the
strategic and other benefits resulting from the Merger. In addition, we have
assumed that the Merger will be consummated in accordance with the terms set
forth in the Merger Agreement. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction involving Sequent or any of its
assets, although we have in the course of our engagement provided advice to
Sequent in connection with certain other strategic alternatives with parties
other than IBM.
We have acted as financial advisor to the Board of Directors of Sequent in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Sequent and IBM and have received
fees for the rendering of these services. In the ordinary course of business, we
may actively trade the securities of Sequent and IBM for our own account and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Sequent and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by Sequent with the Security and Exchange Commission in respect of
the Merger. In addition, we express no recommendation or opinion as to how the
holders of Common Stock should vote at any shareholder meeting of Sequent held
in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement is fair from a financial point of view to
holders of shares of Common Stock.
<TABLE>
<S> <C> <C>
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ MARK S. MENELL
-------------------------
Mark S. Menell
Principal
</TABLE>
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PROXY
SEQUENT COMPUTER SYSTEMS INC.
SPECIAL MEETING, SEPTEMBER 24, 1999
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Karl C.
Powell, Jr., John McAdam and Robert S. Gregg, and each of them, proxies with the
power of substitution to vote on behalf of the undersigned all shares that the
undersigned may be entitled to vote at the special meeting of stockholders of
Sequent Computer Systems, Inc. ("Sequent") on September 24, 1999 and any
adjournment thereof, with all powers that the undersigned would possess if
personally present with respect to the following.
The shares represented by this proxy will be voted as specified on the
reverse hereof, but if no specification is made, this proxy will be voted for
the approval of the Plan of Merger and the transactions contemplated thereby.
THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS THAT MAY COME
BEFORE THIS MEETING.
(Continued and to be signed on the other side.)
Sequent Computer Systems, Inc.
15450 S.W. Koll Parkway
Beaverton, Oregon 97006
<PAGE>
Please mark
your votes as
indicated in
this example /X/
Proposal to approve the Agreement and Plan of Merger, Dated as of July 11, 1999
among Sequent, International Business Machines Corporation and Pathfinder
Acquisition Corp. and the transactions contemplated thereby.
FOR / / AGAINST / / ABSTAIN / /
Please Note: Any shares of stock of the Company held in the name of fiduciaries,
custodians or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian or brokerage house itself-the beneficial owner
may not directly vote or appoint a proxy to vote the shares and must instruct
the person or entity in whose name the shares are held how to vote the shares
held for the beneficial owner. Therefore, if any shares of stock of Sequent are
held in "street name" by a brokerage house, only the brokerage house, at the
instructions of the client, may vote or appoint a proxy to vote the shares.
The Special Meeting of the Shareholders of Sequent, will be held on September
24, 1999 at 9:00 a.m., Pacific Time at 15450 S.W. Koll Parkway, Beaverton,
Oregon.
Please sign exactly as name(s) appear on the stock certificate, including
designation as executor, trustee, etc., if applicable. A corporation must sign
its name by the president or other authorized officer and a partnership must
sign its name by a partner or other authorized person.
Signature or Signatures Date: , 1999
--------------------------------- -----------
Please sign, date and return this proxy in the enclosed postage paid envelope.
FOLD AND DETACH HERE
<PAGE>
PROXY
SEQUENT COMPUTER SYSTEMS INC.
SPECIAL MEETING, SEPTEMBER 24, 1999
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby authorizes and
instructs the Trustee of the Sequent Computer Systems, Inc. 401(k) Plan to
represent and vote, all shares of Common Stock of Sequent Computer Systems, Inc.
which the undersigned would be entitled to vote at the special meeting of
stockholders of Sequent Computer Systems, Inc. ("Sequent") on September 24, 1999
and any adjournment thereof, with all powers that the undersigned would possess
if personally present with respect to the following.
The shares represented by this proxy will be voted as specified on the
reverse hereof, but if no specification is made, this proxy will be voted for
the approval of the Plan of Merger and the transactions contemplated thereby.
THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS THAT MAY COME
BEFORE THIS MEETING.
(Continued and to be signed on the other side.)
Sequent Computer Systems, Inc.
15450 S.W. Koll Parkway
Beaverton, Oregon 97006
<PAGE>
Please mark
your votes as
indicated in
this example /X/
Proposal to approve the Agreement and Plan of Merger, Dated as of July 11, 1999
among Sequent, International Business Machines Corporation and Pathfinder
Acquisition Corp. and the transactions contemplated thereby.
FOR / / AGAINST / / ABSTAIN / /
Please Note: Any shares of stock of the Company held in the name of
fiduciaries, custodians or brokerage houses for the benefit of their clients
may only be voted by the fiduciary, custodian or brokerage house itself-the
beneficial owner may not directly vote or appoint a proxy to vote the shares
and must instruct the person or entity in whose name the shares are held how
to vote the shares held for the beneficial owner. Therefore, if any shares of
stock of Sequent are held in "street name" by a brokerage house, only the
brokerage house, at the instructions of the client, may vote or appoint a
proxy to vote the shares.
The Special Meeting of the Shareholders of Sequent, will be held on September
24, 1999 at 9:00 a.m., Pacific Time at 15450 S.W. Koll Parkway, Beaverton,
Oregon.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED HEREON. BUT IF
NO SPECIFICATION IS MADE, THE TRUSTEE WILL VOTE ALL OF THE SHARES FOR WHICH YOU
ARE ENTITLED TO PROVIDE INSTRUCTION IN THE SAME PROPORTION AS SHARES FOR WHICH
INSTRUCTIONS ARE RECEIVED. THE TRUSTEE MAY VOTE ACCORDING TO ITS DISCRETION ON
ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING.
Please sign exactly as name(s) appear on the stock certificate, including
designation as executor, trustee, etc., if applicable. A corporation must sign
its name by the president or other authorized officer and a partnership must
sign its name by a partner or other authorized person.
Signature or Signatures ____________________________ Date:___________ , 1999
Please sign, date and return this proxy in the enclosed postage paid envelope.
FOLD AND DETACH HERE
