TEXAS INSTRUMENTS INC, S-4/A, 1999-11-02

TEXAS INSTRUMENTS INC
S-4/A, 1999-11-02
SEMICONDUCTORS & RELATED DEVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1999

REGISTRATION NO. 333-89433

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 1

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
TEXAS INSTRUMENTS INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 3600 75-0289970
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>

---------------------

<TABLE>
<S> <C>
RICHARD J. AGNICH
SENIOR VICE PRESIDENT, SECRETARY & GENERAL COUNSEL
8505 FOREST LANE 8505 FOREST LANE
P.O. BOX 660199 P.O. BOX 660199
DALLAS, TEXAS 75266-0199 DALLAS, TEXAS 75266-0199
(972) 995-3773 (972) 995-3773
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone
Including Area Code, of Registrant's Principal Number, Including Area Code, of Agent for Service)
Executive Offices)
</TABLE>

---------------------

Copies To:

<TABLE>
<S> <C> <C>
G. RUSSELL ASHDOWN MICHAEL BONN, ESQ.
R. SCOTT COHEN, ESQ. PRESIDENT AND CHIEF EXECUTIVE JOHNSON AND COLMAR
WEIL, GOTSHAL & MANGES LLP OFFICER 300 SOUTH WACKER DRIVE
100 CRESCENT COURT, SUITE 1300 POWER TRENDS, INC. SUITE 1000
DALLAS, TEXAS 75201 27715 DIEHL ROAD CHICAGO, ILLINOIS 60606
(214) 746-7700 WARRENVILLE, ILLINOIS 60555 (312) 922-1980
(630) 393-6901
</TABLE>

---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon the effective time of the merger described in this Registration
Statement.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

[Power Trends Logo]

MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT

November 2, 1999

Dear Power Trends Stockholder,

The boards of directors of Power Trends, Inc., Texas Instruments
Incorporated and Power Acquisition Corp., a wholly owned subsidiary of Texas
Instruments, have approved, and the parties have entered into, a merger
agreement that, subject to Power Trends stockholder approval, will result in
Power Acquisition being merged with and into Power Trends. As a result of the
merger, Power Trends will become a wholly owned subsidiary of Texas Instruments.
The merger agreement provides that Power Trends common stockholders will receive
a fraction of a share of Texas Instruments common stock for each share of Power
Trends common stock that they own immediately before the merger. The exact
fraction of a share will be determined by dividing $8.67 by the average of the
daily high and low sales prices of Texas Instruments common stock for the 20
consecutive trading day period ending on the second trading day prior to the
merger, subject to a minimum of 0.0810 and a maximum of 0.1294 of a share of
Texas Instruments common stock for each share of Power Trends common stock.
These minimum and maximum thresholds may be waived in certain circumstances. In
addition, the merger agreement provides that holders of Power Trends preferred
stock will receive shares of Texas Instruments common stock for each share of
Power Trends preferred stock that they own immediately before the merger. The
exact number of shares of Texas Instruments common stock to be received in
exchange for each outstanding share of Power Trends preferred stock will equal
100 multiplied by the fraction of a share of Texas Instruments common stock to
be received for each share of Power Trends common stock.

AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER ON SUBSTANTIALLY THE TERMS AND CONDITIONS SET FORTH
IN THE MERGER AGREEMENT AMONG POWER TRENDS, TEXAS INSTRUMENTS AND POWER
ACQUISITION IS ADVISABLE AND IS FAIR TO, AND IN THE BEST INTERESTS OF, POWER
TRENDS AND ITS STOCKHOLDERS. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
THE MERGER.

The merger cannot be completed unless the holders of two-thirds of the
shares of Power Trends common stock and two-thirds of the shares of Power Trends
preferred stock, voting as separate classes, and two-thirds of Power Trends
common stock and preferred stock, voting together (with each share of common
stock having one vote and each share of preferred stock having 100 votes),
approve it. We have scheduled a special meeting for you to vote on the merger.
YOUR VOTE IS VERY IMPORTANT.

The meeting will be held on Monday, November 22, 1999 at 10:00 a.m., local
time, at the principal offices of Power Trends at 27715 Diehl Road, Warrenville,
Illinois 60555.

Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you wish to vote, your proxy will have
the same effect as a vote in favor of the merger. If you fail to return your
proxy card and do not attend the shareholder meeting, such failure and absence
will have the same effect as a vote against approval of the merger. Returning
the proxy does NOT deprive you of your right to attend the meeting and to vote
your shares in person.

The enclosed proxy statement/prospectus provides you with detailed
information about the proposed merger and about Texas Instruments. We encourage
you to read this entire document carefully. IN PARTICULAR, YOU SHOULD CONSIDER
CAREFULLY THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON
PAGE 13 OF THE PROXY STATEMENT/PROSPECTUS. You may also obtain information about
Texas Instruments from documents that it has filed with the Securities and
Exchange Commission.

Thank you for your cooperation.

Sincerely,

G. RUSSELL ASHDOWN
G. Russell Ashdown
President and Chief Executive
Officer
<PAGE> 3

[Power Trends Logo]

POWER TRENDS, INC.
27715 DIEHL ROAD
WARRENVILLE, ILLINOIS 60555

---------------------

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

---------------------

TO BE HELD MONDAY, NOVEMBER 22, 1999

To The Stockholders:

A Special Meeting of Stockholders of Power Trends, Inc., an Illinois
corporation, will be held on Monday, November 22, 1999 at 10:00 a.m., local
time, at the principal offices of Power Trends at 27715 Diehl Road, Warrenville,
Illinois 60555, to consider and to vote upon the following proposals:

1. To approve and adopt the plan of merger on substantially the terms
and conditions set forth in the Merger Agreement, dated as of September 29,
1999, by and among Texas Instruments Incorporated, a Delaware corporation,
Power Acquisition Corp., an Illinois corporation and a wholly owned
subsidiary of Texas Instruments, and Power Trends, pursuant to which, among
other things, (i) Power Acquisition will be merged with and into Power
Trends, with Power Trends surviving the merger, (ii) each share of Power
Trends' common stock, no par value per share, issued and outstanding
immediately prior to the effective time of the merger will be converted
into the right to receive between 0.0810 and 0.1294 of a share of common
stock, $1.00 par value per share, of Texas Instruments, other than
fractional shares which will be paid in cash, (iii) each share of Power
Trends' preferred stock, no par value per share, issued and outstanding
immediately prior to the effective time of the merger will be converted
into the right to receive between 8.1028 and 12.9403 shares of Texas
Instruments common stock, other than fractional shares which will be paid
in cash and (iv) the articles of incorporation of Power Trends will be
amended and restated as set forth in Annex D hereto. The minimum and
maximum thresholds described in (ii) and (iii) above may be waived in
certain circumstances.

2. Such other business as may properly come before the Special Meeting
or any postponement or adjournment thereof.

These items of business are described in the enclosed proxy
statement/prospectus. The Board of Directors has fixed the close of business on
October 29, 1999 as the record date for determining the stockholders entitled to
notice of and to vote at the Special Meeting.

IN ORDER THAT YOUR STOCK MAY BE REPRESENTED AT THE SPECIAL MEETING IN CASE
YOU ARE NOT PERSONALLY PRESENT, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING POSTAGE PREPAID ENVELOPE.

By order of the Board of Directors,

ROBERT H. ACKMANN

Robert H. Ackmann

Secretary

November 2, 1999

<PAGE> 4

<TABLE>
<S> <C>
[TI LOGO] [POWER TRENDS LOGO]
</TABLE>

PROXY STATEMENT/PROSPECTUS
---------------------
MERGER PROPOSED -- THE VOTE OF POWER TRENDS STOCKHOLDERS IS IMPORTANT

The boards of directors of Texas Instruments Incorporated, a Delaware
corporation, Power Acquisition Corp., an Illinois corporation and a wholly owned
subsidiary of Texas Instruments, and Power Trends, Inc., an Illinois
corporation, have approved, and the parties have entered into, a merger
agreement under which Power Acquisition would merge with and into Power Trends
and Power Trends would become a wholly owned subsidiary of Texas Instruments.

This proxy statement/prospectus is being sent to stockholders of Power
Trends in connection with the solicitation of proxies by the board of directors
of Power Trends for use at the special meeting of Power Trends stockholders to
be held on November 22, 1999, to consider and to vote upon the proposed merger.
This proxy statement also constitutes a prospectus with respect to the shares of
Texas Instruments common stock to be issued to Power Trends stockholders in the
merger, including any shares that may be issued to holders of Power Trends stock
options who exercise such options prior to the merger.

The merger agreement provides that Power Trends common stockholders will
receive a fraction of a share of Texas Instruments common stock for each share
of Power Trends common stock that they own immediately before the merger. The
exact fraction of a share will be determined by dividing $8.67 by the average of
the daily high and low sales prices of Texas Instruments common stock for the 20
consecutive trading day period ending on the second trading day prior to the
merger, subject to a minimum of 0.0810 and a maximum of 0.1294 of a share of
Texas Instruments common stock for each share of Power Trends common stock.
These minimum and maximum thresholds may be waived in certain circumstances. In
addition, the merger agreement provides that holders of Power Trends preferred
stock will receive shares of Texas Instruments common stock for each share of
Power Trends preferred stock that they own immediately before the merger. The
exact number of shares of Texas Instruments common stock to be received in
exchange for each outstanding share of Power Trends preferred stock will equal
100 multiplied by the fraction of a share of Texas Instruments common stock to
be received for each share of Power Trends common stock. If the merger is
completed, Power Trends stockholders will collectively own or be entitled to
receive an aggregate of between approximately .2% and .3% of outstanding Texas
Instruments common stock, depending upon the number of shares of Texas
Instruments common stock issued pursuant to the merger.

Pursuant to a voting agreement executed concurrently with the merger
agreement, certain stockholders of Power Trends holding an aggregate of
approximately 43% of the outstanding shares of Power Trends common stock and
approximately 84% of the outstanding shares of Power Trends preferred stock on
the date of the execution of the voting agreement have agreed to vote in favor
of approval of the merger. The voting agreement further provides that certain
holders of Power Trends preferred stock will convert a sufficient number of
shares of Power Trends preferred stock into Power Trends common stock to assure
the requisite approvals of the merger by the holders of each of the Power Trends
common stock and Power Trends preferred stock. On October 27, 1999, 25,000
shares of Power Trends preferred stock were converted into 2,500,000 shares of
common stock pursuant to this provision. After giving effect to such conversion,
the stockholders who are parties to the voting agreement owned, as of the record
date, approximately 69% of the outstanding shares of Power Trends common stock
and approximately 80% of the outstanding shares of Power Trends preferred stock.

After careful consideration, the board of directors of Power Trends has
determined that the plan of merger on substantially the terms and conditions set
forth in the merger agreement is advisable and is fair to, and in the best
interests of, its stockholders and recommends that its stockholders vote to
adopt and approve the merger agreement.

The merger cannot be completed unless the holders of two-thirds of the
shares of Power Trends common stock and two-thirds of the shares of Power Trends
preferred stock, voting as separate classes, and two-thirds of Power Trends
common stock and preferred stock, voting together (with each share of common
stock having one vote and each share of preferred having 100 votes), approve it.
---------------------

We have scheduled a special meeting for you to vote on the merger. YOUR
VOTE IS VERY IMPORTANT.

Texas Instruments common stock is traded on the New York Stock Exchange
under the symbol "TXN." Texas Instruments intends to have the shares of Texas
Instruments common stock offered in connection with the merger listed on the New
York Stock Exchange.

WE URGE YOU TO CAREFULLY REVIEW THE RISK FACTORS DESCRIBED IN THIS PROXY
STATEMENT/ PROSPECTUS BEGINNING ON PAGE 13.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

This proxy statement/prospectus is dated November 2, 1999, and was first
mailed to the stockholders of Power Trends on or about November 2, 1999.

<PAGE> 5

TEXAS INSTRUMENTS HAS SUPPLIED ALL OF THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS RELATING TO TEXAS INSTRUMENTS AND POWER ACQUISITION,
AND POWER TRENDS HAS SUPPLIED ALL OF THE INFORMATION RELATING TO POWER TRENDS.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. NONE OF TEXAS INSTRUMENTS, POWER ACQUISITION OR POWER
TRENDS HAS AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT EITHER THE MERGER OR THE OTHER TRANSACTIONS THAT ARE
DISCUSSED IN THIS PROXY STATEMENT/PROSPECTUS OTHER THAN THE INFORMATION OR
REPRESENTATIONS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. IF YOU ARE GIVEN
ANY INFORMATION ABOUT THESE MATTERS THAT IS NOT DISCUSSED IN THIS PROXY
STATEMENT/PROSPECTUS, YOU MUST NOT RELY ON THAT INFORMATION.

THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SECURITIES IN ANY LOCATION WHERE OR TO ANY PERSON TO WHOM
TEXAS INSTRUMENTS IS NOT PERMITTED TO OFFER OR TO SELL SECURITIES UNDER
APPLICABLE LAW.

THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS OR THE COMMON STOCK OF
TEXAS INSTRUMENTS OFFERED BY THIS PROXY STATEMENT/PROSPECTUS DOES NOT, UNDER ANY
CIRCUMSTANCE, MEAN THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS OF TEXAS
INSTRUMENTS OR POWER TRENDS SINCE THE DATE OF THIS PROXY STATEMENT/ PROSPECTUS.
IT ALSO DOES NOT MEAN THAT THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS
CORRECT AFTER THIS DATE.

i
<PAGE> 6

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANSWERS TO FREQUENTLY ASKED QUESTIONS
ABOUT THE MERGER....................... 1
SUMMARY................................ 4
RISK FACTORS........................... 13
SELECTED FINANCIAL DATA OF TEXAS
INSTRUMENTS.......................... 17
SELECTED FINANCIAL DATA OF POWER
TRENDS............................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR TEXAS INSTRUMENTS..... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR POWER TRENDS.......... 37
THE POWER TRENDS SPECIAL MEETING....... 40
General.............................. 40
Matters to be Considered at the Power
Trends Special Meeting............ 40
Date, Time and Place................. 40
Record Date; Quorum.................. 40
Votes Required....................... 41
Voting by Power Trends' Executive
Officers, Directors and Certain
Stockholders...................... 41
Voting of Proxies; Revocability of
Proxies........................... 41
Solicitation of Proxies.............. 42
THE MERGER............................. 42
Background........................... 42
Reasons for the Merger............... 44
Recommendation of the Board of
Directors of Power Trends......... 45
Interests of Certain Persons in the
Merger............................ 45
Employee Benefit Plans............... 46
Dissenters' Rights................... 46
Accounting Treatment................. 47
Federal Securities Laws
Consequences...................... 47
Comparison of Rights of Stockholders
of Texas Instruments and Power
Trends............................ 48
U.S. Federal Income Tax Consequences
of the Merger..................... 57
Regulatory Matters................... 58
THE MERGER AGREEMENT................... 59
General.............................. 59
Completion and Effectiveness of the
Merger............................ 59
Conversion of Shares of Power Trends
Common Stock and Preferred
Stock............................. 59
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Treatment of Stock Options........... 60
Exchange Procedures.................. 60
Directors and Officers............... 61
Articles of Incorporation and
Bylaws............................ 61
Representations and Warranties....... 62
Conduct of Business Before Completion
of the Merger..................... 63
Conditions to the Completion of the
Merger............................ 64
Additional Covenants of Power Trends
and Texas Instruments............. 65
Termination of the Merger
Agreement......................... 67
Termination Fees..................... 68
Escrow Fund.......................... 68
Amendment of the Merger Agreement.... 68
Extension and Waiver................. 68
VOTING AGREEMENT....................... 69
BUSINESS OF TEXAS INSTRUMENTS.......... 70
BUSINESS OF POWER TRENDS............... 74
MANAGEMENT OF TEXAS INSTRUMENTS........ 75
Directors............................ 75
Directors' Compensation.............. 76
Executive Officers................... 77
Executive Compensation............... 77
TEXAS INSTRUMENTS SHARE OWNERSHIP OF
CERTAIN PERSONS...................... 82
DESCRIPTION OF CAPITAL STOCK OF TEXAS
INSTRUMENTS.......................... 83
General.............................. 83
The Common Stock..................... 83
The Preferred Stock.................. 83
The Rights Plan...................... 83
LEGAL MATTERS.......................... 85
INDEPENDENT AUDITORS................... 85
INDEX TO FINANCIAL
STATEMENTS........................... F-1
ANNEX A -- Merger Agreement............ A-1
ANNEX B -- Voting Agreement............ B-1
ANNEX C -- Text of Sections 11.65 and
11.70 of the Illinois
Business Corporation Act ... C-1
ANNEX D -- Amended and Restated
Articles of Incorporation of
Power Trends, Inc........... D-1
</TABLE>

ii
<PAGE> 7

ANSWERS TO FREQUENTLY ASKED QUESTIONS ABOUT THE MERGER

Q: When do you expect the merger to be completed?

A: We are working towards completing the merger as quickly as possible. For the
merger to be completed, the Power Trends stockholders must approve it at the
special meeting of Power Trends stockholders. We expect to complete the merger
promptly following the Power Trends special meeting.

Q: What will Power Trends stockholders receive in the merger?

A: For each share of Power Trends common stock you own, you will receive a
fraction of a share of Texas Instruments common stock equal to the exchange
ratio, which is determined as set forth below:

- - The exchange ratio will be calculated by dividing $8.67 by the average of the
daily high and low sales prices of Texas Instruments common stock for the 20
consecutive trading day period ending on the second trading day prior to the
merger, subject to the maximum and minimum exchange ratios referenced below;

- - The maximum exchange ratio is .1294 (in the case of a Texas Instruments
average trading price of $67.00 or less), provided that this maximum exchange
ratio may be waived by Texas Instruments in certain cases, in which event the
maximum exchange ratio will be disregarded in the determination of the
exchange ratio; and

- - The minimum exchange ratio is .0810 (in the case of a Texas Instruments
average trading price of $107.00 or more), provided that this minimum exchange
ratio may be waived by Power Trends in certain cases, in which event the
minimum exchange ratio will be disregarded in the determination of the
exchange ratio.

For each share of Power Trends preferred stock you own, you will receive
the number of shares of Texas Instruments common stock equal to (i) the exchange
ratio, as calculated above, multiplied by (ii) 100.

The following chart shows a range of exchange ratios and the value of
consideration you would receive for each share of your Power Trends common stock
and preferred stock based on several assumed average trading prices of Texas
Instruments common stock during the 20 day trading period. To determine the
number of shares of Texas Instruments common stock you would receive in the
merger in exchange for Power Trends common stock, simply multiply the number of
shares of Power Trends common stock you own by the applicable exchange ratio. To
determine the number of shares of Texas Instruments common stock you would
receive in the merger in exchange for Power Trends preferred stock, simply
multiply the number of shares of Power Trends preferred stock you own by the
applicable exchange ratio, and then multiply the resulting number by 100. Any
resulting fractional shares will be paid in cash.

<TABLE>
<CAPTION>
AVERAGE
TRADING
PRICE OF
TEXAS VALUE OF A VALUE OF A
INSTRUMENTS SHARE OF SHARE OF
COMMON EXCHANGE POWER TRENDS POWER TRENDS
STOCK RATIO COMMON STOCK PREFERRED STOCK
- ----------- -------- ------------ ---------------
<S> <C> <C> <C>
$115.00 0.0810 $9.32 $931.82
$107.00 0.0810 $8.67 $867.00
$100.00 0.0867 $8.67 $867.00
$ 90.00 0.0963 $8.67 $867.00
$ 80.00 0.1084 $8.67 $867.00
$ 70.00 0.1239 $8.67 $867.00
$ 67.00 0.1294 $8.67 $867.00
$ 60.00 0.1294 $7.76 $776.42
$ 55.00 0.1294 $7.12 $711.72
</TABLE>

If the 20 day average trading price had been determined on October 8, 1999,
it would have been $87.34, which would have resulted in an exchange ratio of
.0993. The average trading price does not represent the actual value of the
shares of Texas Instruments common stock you will receive in the merger. The
value of those shares will depend on the market price of Texas Instruments
common stock at the time you receive them.

For a more detailed discussion of the formula that will be used under the
merger agreement to determine the number of shares of Texas Instruments common
stock that you will receive in connection with the merger, see the section
entitled "The Merger Agreement -- Conversion of
1
<PAGE> 8

Shares of Power Trends Common Stock and
Preferred Stock" on page 59.

Q: When will Power Trends stockholders receive shares of Texas Instruments
common stock?

A: Shortly following the merger you will receive a letter of transmittal to
complete and return along with your Power Trends stock certificates. Once you
have done so, Texas Instruments will issue your shares of Texas Instruments
common stock, less the shares to be placed in an escrow fund.
Q: What percentage of my Texas Instruments shares of common stock will be placed
in an escrow fund?

A: Five percent (5%) of the total number of shares of Texas Instruments common
stock that you are initially entitled to receive in the merger will be placed in
an escrow fund for one year, unless extended pending the resolution of any
claims Texas Instruments may have to those shares under the merger agreement.
You will be entitled to receive dividends and vote the escrowed shares at Texas
Instruments stockholders' meetings while the shares are being held in escrow.

For a more detailed discussion of the escrow fund, see the text under the
heading "The Merger Agreement -- Escrow Fund" on page 68.

Q: What are the U.S. federal income tax consequences of the merger to Power
Trends stockholders?

A: In general, holders of Power Trends common stock and preferred stock will not
recognize gain or loss for U.S. federal income tax purposes on the exchange of
their stock in the merger, except with respect to any cash they receive in lieu
of fractional shares of Texas Instruments common stock.

Q: What percentage of Texas Instruments will Power Trends stockholders own
following the merger?

A: Based on the number of shares of Power Trends common stock outstanding as of
the record date or issuable pursuant to warrants and options to purchase common
stock and Power Trends preferred stock outstanding as of the record date, Power
Trends stockholders will collectively own between 1,336,283 and 2,134,064 shares
of Texas Instruments common stock in connection with the merger, depending upon
the average trading price of Texas Instruments common stock. The table below
shows the approximate minimum and maximum percentage ownership of Texas
Instruments that shares of Texas Instruments common stock issued to Power Trends
stockholders will represent following the merger, based on the number of shares
of Texas Instruments common stock outstanding as of September 30, 1999.

<TABLE>
<CAPTION>
SHARES OF TEXAS INSTRUMENTS PERCENTAGE
COMMON STOCK ISSUED OWNERSHIP OF
OR ISSUABLE TO POWER TRENDS TEXAS
STOCKHOLDERS INSTRUMENTS
--------------------------- ------------
<S> <C>
1,336,283........................ .2%
2,134,064........................ .3%
</TABLE>

Q: What will happen to outstanding stock options of Power Trends?

A: All of the outstanding stock options of Power Trends that are not exercised
prior to the time of the merger will be converted into options, or new
substitute options will be granted, to acquire Texas Instruments common stock.
The number of shares of common stock that may be acquired upon exercise and the
exercise price of these new options will be adjusted in accordance with the
exchange ratio. The expiration provisions of the new options will be the same as
those of the Power Trends stock options in effect immediately prior to the
merger.

Q: What should Power Trends stockholders do now?

A: After you have carefully read this proxy statement/prospectus, indicate how
you want to vote by completing and signing the enclosed proxy card. After
completing the proxy card, sign and mail it in the enclosed prepaid return
envelope marked "Proxy" as soon as possible so that your shares may be
represented and voted at the special meeting. Please do not send your Power
Trends stock certificates with your proxy card. After the merger is completed,
you will receive written instructions for exchanging your stock certificates.

If you sign and send your proxy card and do not indicate how you want to
vote, we will count your proxy as a vote in favor of approval of the merger. If
you abstain from voting or do not vote, it will have the effect of a vote
against approval of the merger.

2
<PAGE> 9

The special meeting will take place on November 22, 1999. Even if you have
signed and mailed your proxy card, you may still attend the special meeting and
vote your shares in person.

Q: Can Power Trends stockholders change their votes after mailing signed proxy
cards?

A: Yes. There are three ways in which you may revoke your proxy before it is
exercised and change your vote:

- - First, you may send a written notice revoking your proxy to the Secretary of
Power Trends.

- - Second, you may complete and submit a new, later-dated proxy card.

- - Third, you may attend the Power Trends special meeting and vote in person.

Simply attending the Power Trends special meeting, however, will not revoke
your proxy.

3
<PAGE> 10

SUMMARY

This brief summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that may be
important to you in deciding how to vote. We urge you to read carefully the
entire proxy statement/prospectus and the other documents to which this proxy
statement/ prospectus refers for further information about the merger. All
information with respect to Texas Instruments common stock included in this
proxy statement/prospectus reflects a two-for-one stock split declared by Texas
Instruments' board of directors on July 15, 1999, and paid to Texas Instruments
stockholders on August 16, 1999. To learn how to obtain more information about
Texas Instruments, see page 73. Each item in this summary includes a page
reference directing you to a more complete description of that item.

THE COMPANIES

TEXAS INSTRUMENTS INCORPORATED (See page 70)
8505 FOREST LANE, P.O. BOX 660199
DALLAS, TEXAS 75266-0199
(972) 995-3773

Texas Instruments is a global semiconductor company and the world's leading
designer and supplier of digital signal processing and analog technologies, the
engines driving the digitalization of electronics. Headquartered in Dallas,
Texas, Texas Instruments' businesses also include materials and controls,
educational and productivity solutions and digital imaging. Texas Instruments
has manufacturing, design or sales operations in more than 25 countries.

POWER TRENDS, INC. (See page 74)
27715 DIEHL ROAD
WARRENVILLE, ILLINOIS 60555
(630) 393-6901

Power Trends is a leading designer, manufacturer and supplier of on-board,
low-voltage, modular power products. The company focuses on three end-product
segments for modular power products: data communications, computer systems and
industrial equipment. Power Trends has a manufacturing facility in Warrenville,
Illinois and sales operations in both the United States and the United Kingdom.

THE SPECIAL MEETING (See page 40)

Power Trends will hold the special meeting at its principal offices at
27715 Diehl Road, Warrenville, Illinois 60555, at 10:00 a.m., local time, on
November 22, 1999. At the special meeting, Power Trends is asking the holders of
its common stock and preferred stock to approve the merger.

RECOMMENDATION OF POWER TRENDS' BOARD OF DIRECTORS (See page 45)

After careful consideration, the Power Trends board of directors has
determined that the merger on substantially the terms and conditions set forth
in the merger agreement is advisable and is fair to, and in the best interests
of, Power Trends and its stockholders. The Power Trends board of directors has
unanimously approved the merger and the merger agreement and unanimously
recommends that Power Trends stockholders vote "for" approval and adoption of
the merger.

POWER TRENDS STOCKHOLDER APPROVAL (See page 41)

The approval of the merger requires the affirmative vote of at least
two-thirds of the shares of Power Trends common stock and two-thirds of the
shares of Power Trends preferred stock, voting as separate classes, and
two-thirds of Power Trends common stock and preferred stock, voting together
(with each share of common stock having one vote and each share of preferred
stock having 100 votes), in each case as outstanding on October 29, 1999, the
record date for the special meeting. For purposes of voting by separate classes,
you are entitled to cast one vote per share of Power Trends common stock or
preferred stock, as applicable, you owned as of the record date.

Pursuant to a voting agreement executed concurrently with the merger
agreement certain stockholders of Power Trends holding an aggregate of
approximately 43% and 84% of the total voting power of all outstanding shares of
Power Trends common stock and preferred stock, respectively, agreed to vote the
Power Trends common stock and preferred stock owned by them "for" approval of
the merger. Additionally, certain holders of preferred stock agreed to convert a
sufficient number of shares of preferred stock into common stock to assure the
requisite approvals of the

4
<PAGE> 11

merger. On October 27, 1999, 25,000 shares of Power Trends preferred stock were
converted into 2,500,000 shares of Power Trends common stock pursuant to such
agreement. After giving effect to such conversion, the stockholders who are
parties to the voting agreement owned, as of the record date, approximately 69%
of the outstanding shares of Power Trends common stock and approximately 80% of
the outstanding shares of Power Trends preferred stock.

PROCEDURE FOR CASTING YOUR VOTE (See page 41)

Please mail your signed proxy card in the enclosed return envelope as soon
as possible so that your shares of Power Trends common stock may be represented
and voted at the special meeting. If you do not include instructions on how to
vote your proxy, your shares will be voted "for" approval of the merger.

PROCEDURE FOR CHANGING YOUR VOTE (See page 41)

If you want to change your vote, just send a later-dated, signed proxy card
before the Power Trends special meeting or attend the special meeting and vote
your shares in person. You may also revoke your proxy by sending written notice
to the Secretary of Power Trends before the special meeting.

PROCEDURE FOR EXCHANGING YOUR STOCK CERTIFICATES (See page 60)

After the merger is completed, you will receive written instructions for
exchanging your Power Trends stock certificates for Texas Instruments stock
certificates. Do not send your Power Trends stock certificates now.

THE MERGER AGREEMENT

The merger agreement is attached to this proxy statement/prospectus as
Annex A. Please read the merger agreement in its entirety. It is the legal
document that governs your rights in connection with the merger.

Conditions to Completion of the Merger (See page 64)

Texas Instruments' and Power Trends' obligations to complete the merger are
subject to a number of conditions, including the following:

- the merger will have been approved by the Power Trends stockholders;

- the waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 will have expired or been terminated;

- no suit or proceeding will have been initiated or threatened that
challenges or seek damages or other relief in connection with the merger,
or that could have the effect of preventing, delaying, making illegal or
otherwise interfering with the merger;

- the registration statement will have been declared effective by the SEC;
and

- the Texas Instruments common stock to be issued pursuant to the merger
will have been approved for listing on the NYSE.

Power Trends' obligation to complete the merger is also subject to the
following additional conditions:

- the representations and warranties made by Texas Instruments and Power
Acquisition in the merger agreement are accurate in all material
respects;

- Texas Instruments will have performed or complied with in all material
respects all conditions, obligations and agreements under the merger
agreement;

- Power Trends will have received an opinion of its tax counsel, Johnson
and Colmar, to the effect that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and

- Power Trends will have received an opinion as to certain legal matters
from Weil, Gotshal & Manges LLP.

5
<PAGE> 12

Each of Texas Instruments' and Power Acquisition's obligation to complete
the merger is also subject to the following additional conditions:

- the representations and warranties made by Power Trends in the merger
agreement are accurate in all material respects;

- Power Trends will have performed or complied with in all material
respects all conditions, obligations and agreements under the merger
agreement;

- holders of no more than 5% of Power Trends' common stock (assuming the
conversion of all shares of preferred stock into common stock) will have
exercised dissenters' rights in connection with the merger;

- a certain warrant to purchase shares of Power Trends common stock will
have been exercised;

- Texas Instruments will have received an opinion as to certain legal
matters from Johnson and Colmar;

- Texas Instruments will have received an opinion of its tax counsel, Weil,
Gotshal & Manges LLP, to the effect that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and

- Texas Instruments will have received a letter from Power Trends'
accountant, Arthur Andersen LLP, to the effect that the merger qualifies
as a "pooling of interests," and a letter from its accountant, Ernst &
Young LLP, to the same effect.

In the event Texas Instruments or Power Trends determines to waive
compliance with any of these conditions, they will seek the advice of counsel
with respect to whether this proxy statement/prospectus should be revised and
recirculated to stockholders to reflect the waiver.

Termination of the Merger Agreement (See page 67)

As summarized below, the merger agreement may be terminated under certain
circumstances at any time before the completion of the merger.

The merger agreement may be terminated by mutual consent of Texas
Instruments and Power Trends, whether before or after the vote by Power Trends
stockholders.

The merger agreement may also be terminated by either Texas Instruments or
Power Trends under any of the following circumstances:

- if the merger is not completed by December 31, 1999, except that if any
of the conditions to closing remain reasonably capable of satisfaction at
such time, the termination date will automatically be extended to
February 28, 2000;

- if Power Trends stockholders do not approve and adopt the merger at the
special meeting; or

- if any final and non-appealable law prohibits the completion of the
merger.

Power Trends may terminate the merger agreement under the following
circumstances:

- if Texas Instruments or Power Acquisition has breached any
representation, warranty, covenant or agreement in the merger agreement
that cannot be cured and would cause certain conditions to the
consummation of the merger not to be met on or before February 28, 2000;
or

- if the average high and low sales price of the Texas Instruments common
stock for the 20 consecutive trading day period ending on the second
trading day prior to the merger is less than $67.00, provided, that Texas
Instruments shall have the right to waive the application of the minimum
price provision in determining the exchange ratio, in which case the
notice of termination shall be void.

Texas Instruments may terminate the merger agreement under the following
circumstances:

- if Power Trends has breached any representation, warranty, covenant or
agreement in the merger agreement that cannot be cured and would cause
certain conditions to the consummation of the merger not to be met on or
before February 28, 2000;

- if the average high and low sales price of the Texas Instruments common
stock for the 20 consecutive trading day period ending on the second
trading day prior to the merger is greater than $107.00, pro-

6
<PAGE> 13

vided, that Power Trends shall have the right to waive the application of
the maximum price provision in determining the exchange ratio, in which
case the notice of termination shall be void; or

- if holders of shares of more than 5% of the Power Trends common stock
(assuming the conversion of all shares of preferred stock into common
stock) shall have exercised dissenters' rights.

Termination Fees (See page 68)

Power Trends has agreed to pay Texas Instruments a termination fee of
$6,000,000 if the merger agreement is terminated under certain circumstances
and, within twelve months of the termination of the merger agreement, Power
Trends enters into or agrees to enter into a business combination with a third
party.

DISSENTERS' RIGHTS (See page 46)

Holders of Power Trends capital stock who do not vote in favor of the
merger and follow the appropriate procedures of Sections 11.65 and 11.70 of the
Illinois Business Corporation Act will be entitled to receive payment in cash of
the estimated fair value of their shares of Power Trends stock instead of Texas
Instruments common stock. The text of Sections 11.65 and 11.70 of the Illinois
Business Corporation Act is attached to this proxy statement/prospectus as Annex
C.

ACCOUNTING TREATMENT (See page 47)

We expect the merger to qualify as a "pooling of interests" under generally
accepted accounting principles, which means that for accounting and financial
reporting purposes, the recorded assets and liabilities of Power Trends will be
carried forward and combined with those of Texas Instruments at their recorded
amounts.

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO POWER TRENDS STOCKHOLDERS
(See page 57)

The merger is intended to qualify as a nontaxable transaction, and we
expect that the exchange of your shares of Power Trends common stock and
preferred stock for shares of Texas Instruments common stock will generally not
cause you to recognize any gain or loss for U.S. federal income tax purposes.
You will, however, have to recognize income or gain in connection with any cash
you receive in lieu of fractional shares of Texas Instruments common stock.

TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO
YOU.

REGULATORY MATTERS (See page 58)

The merger is subject to antitrust laws in the United States. We have made
the required filings with the U.S. Department of Justice and the Federal Trade
Commission. We cannot assure you that the U.S. Department of Justice or the
Federal Trade Commission, foreign regulatory agencies or others will not
challenge the merger at any time before or after its completion.

VOTING AGREEMENT (See page 69)

In order to induce Texas Instruments to enter into the merger agreement,
some stockholders of Power Trends entered into a voting agreement with Texas
Instruments as of September 29, 1999. The stockholders who signed the voting
agreement agreed to vote an aggregate of 1,321,518 shares of Power Trends common
stock and 105,900 shares of Power Trends preferred stock held by them,
representing approximately 43% of the total outstanding voting power of the
common stock and approximately 84% of the total outstanding voting power of the
preferred stock, respectively, as of the record date, in favor of approval of
the merger. Pursuant to the voting agreement certain holders of Power Trends
preferred stock have converted a sufficient number of shares of Power Trends
preferred stock into Power Trends common stock to assure the requisite approvals
of the merger by the holders of each of the Power Trends common stock and Power
Trends preferred stock.

INTERESTS OF CERTAIN PERSONS IN THE MERGER (See page 45)

In considering the recommendation of the Power Trends board of directors
with respect to

7
<PAGE> 14

the merger and the transactions contemplated by the merger agreement,
stockholders of Power Trends should be aware that some members of management of
Power Trends have particular interests in the merger that are different from, or
in addition to, the interests of stockholders of Power Trends generally.

RISK FACTORS (See page 13)

Stockholders of Power Trends are urged to consider the items under the
section entitled "Risk Factors" beginning on page 13 in determining whether to
vote in favor of approval of the merger.

8
<PAGE> 15

SELECTED HISTORICAL FINANCIAL DATA OF TEXAS INSTRUMENTS

Set forth below is selected financial data for Texas Instruments for and as
of the periods indicated. This selected historical financial data is only a
summary and we urge you to read this information in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Texas Instruments" and the financial statements and related notes
to those financial statements contained in this proxy statement/prospectus.

<TABLE>
<CAPTION>
IN MILLIONS, EXCEPT PER-SHARE DATA
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues................. $ 8,460 $ 9,750 $ 9,940 $ 11,409 $ 8,608 $ 4,385 $ 4,353
Operating costs and
expenses................... 8,061 9,135 9,966 9,970 7,682 3,632 4,413
-------- -------- -------- -------- -------- -------- --------
Profit (loss) from
operations................. 399 615 (26) 1,439 926 753 (60)
Other income (expense),
net........................ 218 98 3 31 (39) 106 156
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before provision
for income taxes and
extraordinary item......... 617 713 (23) 1,470 887 859 96
Provision for income taxes... 210 411 23 474 295 292 33
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before
extraordinary item......... $ 407 $ 302 $ (46) $ 996 $ 592 $ 567 $ 63
======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss) per
common share from
continuing operations
before extraordinary
item(1).................... $ .51 $ .38 $ (.06) $ 1.29 $ .78 $ .70 $ .08
Basic earnings (loss) per
common share from
continuing operations
before extraordinary
item(1).................... $ .52 $ .39 $ (.06) $ 1.33 $ .81 $ .72 $ .08
Dividends declared per common
share(1)................... $ .128 $ .17 $ .17 $ .16 $ .118 $ .085 $ .043
Average common and dilutive
potential common shares
outstanding during period,
in thousands(1)............ 801,857 795,454 758,776 774,524 763,418 810,445 801,689
</TABLE>

<TABLE>
<CAPTION>
IN MILLIONS
AS OF DECEMBER 31, AS OF
---------------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments.......... $ 2,249 $ 3,020 $ 978 $ 1,553 $ 1,290 $ 1,743
Working capital.......................... 2,650 3,607 1,968 2,566 1,965 2,743
Total assets............................. 11,250 10,849 9,360 8,748 6,468 11,047
Long-term debt........................... 1,027 1,286 1,697 804 808 960
Total stockholders' equity............... 6,527 5,914 4,097 4,095 3,039 6,721
</TABLE>

- ---------------

(1) Reflects a two-for-one stock split declared by Texas Instruments' board of
directors on July 15, 1999 and paid to Texas Instruments stockholders on
August 16, 1999.

9
<PAGE> 16

SELECTED HISTORICAL FINANCIAL DATA OF POWER TRENDS

Set forth below is selected financial data for Power Trends for and as of
the periods indicated. This selected historical financial data is only a summary
and we urge you to read this information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Power Trends" and the financial statements and related notes to those financial
statements contained in this proxy statement/prospectus.

<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER-SHARE DATA
YEAR ENDED JUNE 30,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $39,015 $28,005 $18,408 $15,350 $11,387
Cost of goods sold......................................... 24,787 18,282 11,916 9,827 6,762
------- ------- ------- ------- -------
Gross profit............................................. 14,228 9,723 6,492 5,523 4,625
Operating expenses......................................... 8,979 7,164 5,539 5,355 4,486
------- ------- ------- ------- -------
Income from operations..................................... 5,249 2,559 953 168 139
Other income (expense), net................................ (216) (242) (161) (59) (96)
------- ------- ------- ------- -------
Income before taxes........................................ 5,033 2,317 792 109 43
Provision for income taxes................................. 242 60 10 11 --
------- ------- ------- ------- -------
Net income................................................. $ 4,791 $ 2,257 $ 782 $ 98 $ 43
======= ======= ======= ======= =======
Basic and diluted earnings per share:
Income before preferred stock accretion.................... 4,791 2,257 782 98 43
Less: Preferred stock accretion............................ (8,974) (7,509) (6,153) (4,898) (3,732)
------- ------- ------- ------- -------
Net loss available to common stockholders.................. (4,183) (5,252) (5,371) (4,800) (3,689)
Net loss per basic and diluted common share................ (1.48) (1.89) (1.96) (1.83) (1.57)
Weighted-average number of basic and diluted common shares
outstanding:............................................. 2,820 2,786 2,741 2,629 2,355
</TABLE>

<TABLE>
<CAPTION>
IN THOUSANDS
AS OF JUNE 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments.................... $ 2,691 $ 882 $ 844 $ 1,248 $ 1,487
Working capital.................................... 7,752 5,020 3,170 2,942 2,545
Total assets....................................... 19,257 12,804 9,855 6,695 6,072
Long-term debt..................................... 1,608 2,148 1,764 1,190 443
Total stockholders' equity......................... 11,809 6,990 4,716 3,925 3,759
</TABLE>

10
<PAGE> 17

MARKET PRICE AND DIVIDEND INFORMATION FOR TEXAS INSTRUMENTS

Texas Instruments common stock is listed on the New York Stock Exchange
under the symbol "TXN." The table below sets forth for each of the calendar
quarters indicated, the high and low sales prices per share of Texas Instruments
common stock on the composite tape as reported by The Wall Street Journal and
the dividends per share paid on the Texas Instruments common stock, both as
adjusted for two-for-one stock splits in November 1997 and August 1999.
Additional stock splits may be considered in the future based on a variety of
factors, including market conditions and the trading price of Texas Instruments
common stock.

<TABLE>
<CAPTION>
CALENDAR QUARTER
---------------------------------
1ST 2ND 3RD 4TH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Stock prices:
1999 High............................................. $53.94 $72.50 $93.44 $94.13(1)
Low................................................ 43.00 49.50 67.09 82.13(1)
1998 High............................................. 31.38 33.50 31.85 45.22
Low................................................ 20.13 23.44 23.03 22.69
1997 High............................................. 21.82 24.10 35.50 35.63
Low................................................ 15.53 18.41 21.07 19.82
1996 High............................................. 27.88 29.82 29.63 34.19
Low................................................ 21.38 24.32 20.25 23.75
Dividends:
1999.................................................. .043 .043 .043
1998.................................................. .043 .043 .043 .043
1997.................................................. .043 .043 .043 .043
1996.................................................. .043 .043 .043 .043
</TABLE>

- ---------------

(1) Through October 8, 1999.

11
<PAGE> 18

COMPARATIVE PER SHARE DATA

We have summarized below the per share information of Texas Instruments and
Power Trends on a historical, pro forma combined and pro forma equivalent basis.
The information should be read in conjunction with the historical financial
statements and related notes to those financial statements of Texas Instruments
and Power Trends that are contained in this proxy statement/prospectus.

You should be aware that this pro forma information may not be indicative
of what actual results will be in the future or what the results would have been
for the periods presented.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED
------------------------ -----------------------------
1999 1998 1997 JUNE 30, 1999 JUNE 30, 1998
------ ------ ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Power Trends Historical
Income per common share, basic and diluted................ $(1.48) $(1.89) $(1.96) $(1.94) $(2.35)
Book value per share(1)................................... (2.79) (4.05) (4.43) (2.79) (4.05)

YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------ -----------------------------
1998 1997 1996 JUNE 30, 1999 JUNE 30, 1998
------ ------ ------ ------------- -------------
Unaudited Pro Forma Combined(2)
Income (loss) per common share from continuing operations,
basic................................................... $ .52 $ .39 $ (.06) $ .73 $ .08
Income (loss) per common share from continuing operations,
diluted................................................. .51 .38 (.06) .70 .08
Cash dividends declared per share......................... .128 .17 .17 .085 .043
Book value per share...................................... 8.35 8.55
Power Trends Per Share Equivalent(3)........................
Income (loss) per common share from continuing operations,
basic................................................... .05 .04 (.01) .07 .01
Income (loss) per common share from continuing operations,
diluted................................................. .05 .04 (.01) .07 .01
Cash dividends declared per share......................... .012 .017 .017 .009 .004
Book value per share...................................... .84 .86
</TABLE>

- ---------------

(1) Historical book value per share is computed by dividing stockholders' equity
by the number of shares of common stock outstanding at the end of each
period.

(2) For purposes of the unaudited pro forma combined share data, Power Trends'
historical financial data has been combined for the twelve month periods
ended December 31, 1998, 1997 and 1996 and the six months ended June 30,
1999 and June 30, 1998 with Texas Instruments' historical financial data for
the years ended December 31, 1998, 1997 and 1996 and the six months ended
June 30, 1999 and 1998. The unaudited pro forma combined share data has been
prepared as if the merger had occurred at the beginning of each respective
Texas Instruments fiscal period, except with respect to book value data,
which has been prepared as if the merger had occurred at the end of each
respective Texas Instruments fiscal period. Pro forma cash dividends
declared per share represent historical dividends per share declared by
Texas Instruments.

(3) The equivalent pro forma share amounts of Power Trends are calculated by
multiplying unaudited pro forma combined income per share and book value per
share amounts by an assumed exchange ratio of .1008, based on the closing
price of Texas Instruments common stock of $86.00 on October 8, 1999.

12
<PAGE> 19

RISK FACTORS

We urge you to carefully consider the risk factors set forth below, as well
as the other information set forth in this proxy statement/prospectus, before
voting to approve the merger. In addition, you are strongly urged to consider
the risk factors set forth elsewhere in this proxy statement/prospectus. This
proxy statement/prospectus contains forward-looking statements which involve
risks and uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
these differences include, but are not limited to, the risk factors set forth
below.

THE VALUE OF THE MERGER CONSIDERATION IS NOT FIXED AND, THEREFORE, COULD BE LESS
THAN ANTICIPATED BY POWER TRENDS STOCKHOLDERS.

The number and market price of the shares of Texas Instruments common stock
that Power Trends stockholders will receive in connection with the merger is
subject to fluctuation. Based on the number of Power Trends shares of common
stock and preferred stock outstanding as of the record date, Power Trends
stockholders will receive an aggregate of between approximately 1.336 million
and 2.134 million shares of Texas Instruments common stock depending upon the
average high and low sales prices of Texas Instruments common stock during the
20 consecutive trading day period ending on the second trading day prior to the
merger. See the section entitled "The Merger Agreement -- Conversion of Shares
of Power Trends Common Stock and Preferred Stock" on page 59 for more
information. Although the number of shares of Texas Instruments common stock
Power Trends stockholders will receive in the merger is based on that average
trading price, the market price of Texas Instruments common stock may fluctuate.
Accordingly, on the date of the merger and on the date Power Trends stockholders
actually receive their shares of Texas Instruments common stock in exchange for
their Power Trends stock certificates, the market price of Texas Instruments
common stock may be more or less than the average trading price of Texas
Instruments common stock used to determine the merger consideration.

TEXAS INSTRUMENTS COULD MAKE CLAIMS AGAINST YOUR ESCROWED SHARES OF TEXAS
INSTRUMENTS COMMON STOCK IF IT DISCOVERS PROBLEMS WITH THE ACQUIRED POWER TRENDS
BUSINESS AFTER THE MERGER.

This acquisition involves a number of uncertainties. Therefore, in making
the decision to acquire Power Trends, Texas Instruments has relied on
management's knowledge of the industry, due diligence procedures and
representations and warranties of Power Trends contained in the merger
agreement. There can be no assurance that these representations and warranties
are or will be true and complete. If the representations and warranties of Power
Trends in the merger agreement are inaccurate, Texas Instruments may be able to
make claims against the shares of Texas Instruments common stock issued to Power
Trends stockholders in the merger that are being held in escrow. If Texas
Instruments makes and prevails on any of these claims, you will not receive all
or a portion of your shares of Texas Instruments common stock being held in
escrow.

POWER TRENDS OFFICERS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE THEM TO
SUPPORT OR RECOMMEND THE MERGER.

Certain officers of Power Trends participate in arrangements that provide
them with interests in the merger that are different from, or are in addition
to, yours. In particular, all of the officers but one (whose options are already
vested and immediately exercisable) have options to purchase Power Trends common
stock that will vest and become immediately exercisable as a result of the
merger. In addition, certain officers of Power Trends, consisting of G. Russell
Ashdown, Robert H. Ackmann, Brian C. Narveson, Thomas A. Rotunno, George Ann
Zimmerer and Stephen A. Anderson, have entered into employment agreements with
Texas Instruments which will become effective upon completion of the merger, all
of which provide for salary and benefits and some of which additionally provide
for awards of Texas Instruments restricted stock units and options to purchase
Texas Instruments common stock.

As a result of these interests, these officers could be more likely to
support or recommend the approval of the merger on substantially the terms and
conditions set forth in the merger agreement than if

13
<PAGE> 20

they did not have these interests. Power Trends stockholders should consider
whether these interests may have influenced these officers to support or
recommend the approval of the merger.

TEXAS INSTRUMENTS MAY HAVE DIFFICULTY INTEGRATING POWER TRENDS' OPERATIONS AND
RETAINING IMPORTANT EMPLOYEES OF POWER TRENDS.

There can be no guarantee that management will be able to successfully
integrate Power Trends' employees and operations following the merger, and there
is the risk that Texas Instruments will be unable to retain all of Power Trends'
key employees for a number of reasons, including the risk that the cultures of
the companies will not blend. There also can be no assurance that any
contemplated synergies from the integration of the businesses will be realized.

THE INTEGRATION OF POWER TRENDS WILL REQUIRE SUBSTANTIAL TIME AND EFFORT OF KEY
MANAGERS OF TEXAS INSTRUMENTS, WHICH COULD DIVERT THE ATTENTION OF THOSE
MANAGERS FROM OTHER MATTERS.

The merger will place significant demands on key managers of Texas
Instruments. Risks exist in the consolidation of the systems, operations and
administrative functions of Power Trends and Texas Instruments. Managing the
growth of the Power Trends business may limit the time available for those
managers of Texas Instruments to attend to other operational, financial and
strategic issues.

DOWNTURNS IN THE SEMICONDUCTOR MARKET COULD ADVERSELY AFFECT TEXAS INSTRUMENTS.

Texas Instruments' semiconductor business represents its largest business
segment and the principal source of its revenues. The semiconductor market has
historically been cyclical and subject to significant economic downturns. The
weak semiconductor market in 1998 had an adverse effect on the demand for Texas
Instruments' semiconductor products and resulted in a decrease in revenues from
Texas Instruments' sale of semiconductors compared to 1997. A significant delay
in the recovery of, or a prolonged weakening of, the semiconductor market may
adversely affect Texas Instruments' results of operations and have an adverse
effect on the market price of its securities.

TEXAS INSTRUMENTS IS HIGHLY DEPENDENT ON THE DEVELOPMENT AND MARKETABILITY OF
NEW TECHNOLOGIES AND PRODUCTS.

Texas Instruments' results of operations depend in part upon its ability to
successfully develop and market innovative products in a rapidly changing
technological environment. Texas Instruments requires significant capital to
develop new technologies and products to meet changing customer demands that, in
turn, may result in shortened product lifecycles. Moreover, expenditures for
technology and product development are generally made before the commercial
viability for such developments can be assured. As a result, there can be no
assurance that Texas Instruments will successfully develop and market these new
products, that the products Texas Instruments does develop and market will be
well received by customers or that Texas Instruments will realize a return on
the capital expended to develop such products.

SIGNIFICANT COMPETITION EXISTS IN THE MARKETS IN WHICH TEXAS INSTRUMENTS
OPERATES.

Texas Instruments faces intense technological and pricing competition in
the markets in which it operates. Texas Instruments expects that the level of
this competition will increase in the future from large, established
semiconductor and related product companies, as well as from emerging companies
serving niche markets also served by Texas Instruments. Certain of Texas
Instruments' competitors possess sufficient financial, technical and management
resources to develop and market products that may compete favorably against
those products of Texas Instruments that currently offer technological and/or
price advantages over competitive products. Competition results in price and
product development pressures, which may result in reduced profit margins and
lost business opportunities in the event that Texas Instruments is unable to
match price declines or technological, product, applications support, software
or manufacturing advances of its competitors.

14
<PAGE> 21

TEXAS INSTRUMENTS' GROWTH AND SUCCESS WILL DEPEND, IN PART, ON THE DEVELOPMENT,
PROTECTION AND LICENSING OF INTELLECTUAL PROPERTY.

Texas Instruments benefits from royalties generated from various license
agreements that will be in effect through the year 2005. Future royalty revenues
and access to worldwide markets depend on the continued strength of Texas
Instruments' intellectual property portfolio. Texas Instruments actively
enforces and protects its intellectual property rights, but there can be no
assurance that Texas Instruments' efforts will be adequate to prevent the
misappropriation or improper use of the protected technology. Moreover, there
can be no assurance that, as Texas Instruments' business expands into new areas,
Texas Instruments will be able to independently develop the technology, software
or know-how necessary to conduct its business and may have to rely increasingly
on licensed technology from others. To the extent that Texas Instruments relies
on licenses from others, there can be no assurance that it will be able to
obtain all of the licenses it desires in the future on terms it considers
reasonable or at all.

SIGNIFICANT DECLINES IN SELECTED END-USER MARKETS COULD ADVERSELY AFFECT TEXAS
INSTRUMENTS.

Texas Instruments' customer base includes companies in a wide range of
industries, but Texas Instruments generates a significant amount of revenues
from sales to customers in the telecommunications and computer industries.
Within these industries, a large portion of Texas Instruments' revenues is
generated by the sale of digital signal processors and analog integrated
circuits to customers in the cellular phone, modem and hard disk drive segments
of these industries. A significant decline in any one or several of these
end-user markets could have a material adverse effect on the demand for Texas
Instruments' products and its results of operations.

YEAR 2000 ISSUES COULD HAVE A SIGNIFICANT IMPACT ON TEXAS INSTRUMENTS AND THE
MARKETS IT SERVES.

Since 1995, Texas Instruments has been addressing Year 2000 issues that
result from the use of two digit, rather than four digit, year dates in
software. Texas Instruments has essentially completed the ownership, inventory,
assessment and corrective action deployment phases of its Year 2000 effort for
priority items in each program area: Information Technology, Physical Plant,
Products and Extended Enterprise. There can be no assurance, however, that Texas
Instruments has fully and accurately assessed its Year 2000 readiness or the
effectiveness of its corrective actions, nor can there be any assurance that
Texas Instruments' customers and suppliers will timely complete their respective
Year 2000 efforts and avoid Year 2000 disruption.

INTERNATIONAL OPERATIONS EXPOSE TEXAS INSTRUMENTS TO CERTAIN CURRENCY
FLUCTUATION AND OTHER RISKS.

Texas Instruments has manufacturing, design or sales operations in more
than 25 countries worldwide and in 1998 derived in excess of 68% of its revenues
from sales to locations outside the United States. Operating internationally
exposes Texas Instruments to changes in the laws or policies, as well as the
general economic conditions, of the various countries in which it operates,
which could result in an adverse effect on Texas Instruments' business
operations in such countries and its results of operations. Also, Texas
Instruments uses forward currency exchange contracts to minimize the adverse
earnings impact from the effect of exchange rate fluctuations on its non-U.S.
dollar net balance sheet exposures. Nevertheless, in periods when the U.S.
dollar strengthens in relation to the non-U.S. currencies in which Texas
Instruments transacts business, the remeasurement of non-U.S. dollar
transactions can have an adverse effect on Texas Instruments' non-U.S. business.

DEPENDENCE ON CERTAIN CUSTOMERS COULD BE DETRIMENTAL TO TEXAS INSTRUMENTS.

While Texas Instruments generates revenues from thousands of customers
worldwide, the loss of or significant curtailment of purchases by one or more of
its top customers, including curtailments due to a change in the sourcing
policies or practices of these customers, may adversely affect Texas
Instruments' results of operations.

15
<PAGE> 22

FAILURE TO RETAIN AND RECRUIT KEY PERSONNEL COULD BE DETRIMENTAL TO TEXAS
INSTRUMENTS.

Texas Instruments' continued success depends on the retention and
recruitment of skilled personnel, including technical, marketing, management and
staff personnel. Experienced personnel in the electronics industry are in high
demand and competition for their skills is intense. There can be no assurance
that Texas Instruments will be able to successfully retain and recruit the key
personnel that it requires.

POWER TRENDS STOCKHOLDERS SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING
INFORMATION.

Information contained in this proxy statement/prospectus may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which can be
identified by the use of forward-looking terminology like "may," "will,"
"expect," "intend," "anticipate," "believe," "estimate," "continue" or "pro
forma" or the negative or other variations of those words or comparable
terminology.

All forward-looking statements contained in this proxy statement/prospectus
are expressly qualified in their entirety by the cautionary statements set forth
in this proxy statement/prospectus. Stockholders of Power Trends are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date of this proxy statement/prospectus. Neither Texas Instruments nor
Power Trends undertakes any responsibility to update you on the occurrence of
any anticipated events which may cause actual results to differ from those
expressed or implied by the forward-looking statements contained in this proxy
statement/prospectus.

We urge you to carefully consider the following important factors that
could cause actual results to differ materially from the expectations of Texas
Instruments or its management:

- Market demand for semiconductors, particularly for digital signal
processors and analog integrated circuits in key markets, such as
telecommunications and computers;

- Texas Instruments' ability to develop, manufacture and market innovative
products in a rapidly changing technological environment;

- Texas Instruments' ability to compete in products and prices in an
intensely competitive industry;

- Texas Instruments' ability to maintain and enforce a strong intellectual
property portfolio and obtain needed licenses from third parties;

- Timely completion by customers and suppliers of their Year 2000 programs,
accurate assessment of Texas Instruments' Year 2000 readiness and of
risks associated with its current and past products, and effective
implementation of contingency plans and corrective actions;

- Timely completion of announced acquisitions;

- Global economic, social and political conditions in the countries in
which Texas Instruments and its customers and suppliers operate,
including fluctuations in foreign currency exchange rates;

- Losses or curtailments of purchases from key customers;

- Texas Instruments' ability to recruit and retain skilled personnel;

- Availability of raw materials and critical manufacturing equipment; and

- Realization of savings from announced worldwide corporate restructuring
efforts and consolidation of manufacturing operations.

16
<PAGE> 23

SELECTED FINANCIAL DATA OF TEXAS INSTRUMENTS

Set forth below is selected financial data for Texas Instruments for and as
of the periods indicated. This selected financial data is only a summary and we
urge you to read this information in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations for Texas
Instruments" and the financial statements and the related notes thereto of Texas
Instruments contained in this proxy statement/prospectus.

<TABLE>
<CAPTION>
IN MILLIONS, EXCEPT PER-SHARE DATA
SIX MONTHS ENDED
YEAR ENDED ON DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues..................................... $ 8,460 $ 9,750 $ 9,940 $ 11,409 $ 8,608 $ 4,385 $ 4,353
-------- -------- -------- -------- -------- -------- --------
Operating costs and expenses:
Cost of revenues............................... 5,394 6,067 7,146 7,401 5,725 2,307 2,958
Research and development....................... 1,206 1,536 1,181 842 578 666 634
Marketing, general and administrative.......... 1,461 1,532 1,639 1,727 1,379 659 821
-------- -------- -------- -------- -------- -------- --------
Total.................................... 8,061 9,135 9,966 9,970 7,682 3,632 4,413
-------- -------- -------- -------- -------- -------- --------
Profit (loss) from operations.................... 399 615 (26) 1,439 926 753 (60)
Other income (expense) net....................... 293 192 76 79 6 143 193
Interest on loans................................ 75 94 73 48 45 37 37
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations before
provision for income taxes and extraordinary
item........................................... 617 713 (23) 1,470 887 859 96
Provision for income taxes....................... 210 411 23 474 295 292 33
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations before
extraordinary item............................. 407 302 (46) 996 592 567 63
Discontinued operations:
Income from operations......................... -- 52 109 92 99 -- --
Gain on sale................................... -- 1,473 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item................. 407 1,827 63 1,088 691 567 63
Extraordinary item: extinguishment of debt....... -- (22) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income....................................... $ 407 $ 1,805 $ 63 $ 1,088 $ 691 567 63
======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss) per common share:
Continuing operations before extraordinary
item......................................... $ .51 $ .38 $ (.06) $ 1.29 $ .78 .70 .08
Discontinued operations:
Income from operations......................... -- .07 .14 .12 .13 -- --
Gain on sale................................... -- 1.85 -- -- -- -- --
Extraordinary item............................... -- (.03) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income....................................... $ .51 $ 2.27 $ .08 $ 1.41 $ .91 .70 .08
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss) per common share:
Continuing operations before extraordinary
item......................................... $ .52 $ .39 $ (.06) $ 1.33 $ .81 .72 .08
Discontinued operations:
Income from operations:...................... -- .07 .14 .12 .13 -- --
Gain on sale................................. -- 1.91 -- -- -- -- --
Extraordinary item............................. -- (.03) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income....................................... $ .52 $ 2.34 $ .08 $ 1.45 $ .94 .72 .08
======== ======== ======== ======== ======== ======== ========
Average common and dilutive potential common
shares outstanding during year, in thousands... 801,857 795,454 758,776 774,524 763,418 810,445 801,689
</TABLE>

<TABLE>
<CAPTION>
IN MILLIONS
AS OF DECEMBER 31, AS OF
-------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994 1999
------- ------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 540 $ 1,015 $ 964 $1,364 $ 760 $ 334
Working capital............................................. 2,650 3,607 1,968 2,566 1,965 2,743
Total assets................................................ 11,250 10,849 9,360 8,748 6,468 11,047
Long-term debt including current portion.................... 1,294 1,357 2,011 831 820 1,223
Total stockholders' equity.................................. 6,527 5,914 4,097 4,095 3,039 6,721
</TABLE>

17
<PAGE> 24

SELECTED FINANCIAL DATA OF POWER TRENDS

Power Trends is providing the following financial information as required
by the SEC to aid you in your analysis of the financial aspects of the merger.
Power Trends derived this information from its audited financial statements for
1995 through 1999. The selected financial data set forth below are only a
summary, and we urge you to read this information in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations for Power Trends" and the financial statements and the related notes
thereto of Power Trends contained in this proxy statement/prospectus.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $39,015 $28,005 $18,408 $15,350 $11,387
Cost of goods sold............................... 24,787 18,282 11,916 9,827 6,762
------- ------- ------- ------- -------
Gross profit................................... 14,228 9,723 6,492 5,523 4,625
Operating expenses:
Sales and marketing............................ 4,588 3,866 3,011 2,683 2,097
Research and development....................... 3,158 2,317 1,728 1,757 1,668
General and administrative..................... 1,233 981 800 915 721
------- ------- ------- ------- -------
Total operating expenses............... 8,979 7,164 5,539 5,355 4,486
Operating income................................. 5,249 2,559 953 168 139
Other income (expense)
Interest income................................ 63 30 43 74 80
Interest expense............................... (279) (272) (204) (133) (176)
------- ------- ------- ------- -------
Other income (expense) net............. (216) (242) (161) (59) (96)
Income before taxes.............................. 5,033 2,317 792 109 43
------- ------- ------- ------- -------
Provision for income taxes....................... 242 60 10 11 --
------- ------- ------- ------- -------
Net income..................................... 4,791 2,257 782 98 43
Basic and diluted earnings per share:
Income before preferred stock accretion........ 4,791 2,257 782 98 43
Less: Preferred stock accretion................ (8,974) (7,509) (6,153) (4,898) (3,732)
------- ------- ------- ------- -------
Net loss available to common stockholders........ (4,183) (5,252) (5,371) (4,800) (3,689)
Net loss per basic and diluted common share...... (1.48) (1.89) (1.96) (1.83) (1.57)
Weighted-average number of basic and diluted
common shares outstanding...................... 2,820 2,786 2,741 2,629 2,355
BALANCE SHEET DATA:
Cash and cash equivalents........................ 2,691 882 844 1,248 1,487
Working capital.................................. 7,752 5,020 3,170 2,942 2,545
Total assets..................................... 19,257 12,804 9,855 6,695 6,072
Long-term debt including current portion......... 1,608 2,148 1,764 1,190 443
Total stockholders' (deficit) equity............. 11,809 6,990 4,716 3,925 3,759
</TABLE>

18
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR TEXAS INSTRUMENTS

Note: Throughout this proxy statement/prospectus, Texas Instruments' total
financial results for 1998, 1997 and 1996 are reported with the memory business.
Semiconductor results are reported without memory. The memory business was
divested in the third quarter of 1998.

On July 15, 1999, Texas Instruments announced that its Board of Directors
had declared a two-for-one stock split in the form of a 100% stock dividend on
the Texas Instruments common stock outstanding on July 30, 1999, which was paid
on August 16, 1999. The information contained in this proxy statement/
prospectus reflects this stock split.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1999 Compared To Six Months Ended June 30, 1998

Texas Instruments reported second quarter 1999 financial results which
included profit from operations (PFO) of $454 million, leading to an operating
margin of 19.4 percent compared to a loss from operations of $38 million in the
year-ago quarter. Operating margin was up 4.7 percentage points from the first
quarter of 1999. Texas Instruments earnings per share (EPS) increased to $0.40,
up $0.33 from the second quarter of 1998, and up $0.10 from the first quarter of
1999.

Texas Instruments' second quarter revenues include $85 million for catch-up
royalties due under a previously announced agreement with Hyundai Electronics
Industries Co., which contributed about $0.06 EPS.

During the quarter, Texas Instruments announced two acquisitions to support
its strategy in the rapidly emerging broadband communications market: Telogy
Networks, Inc., bringing Texas Instruments Voice over Internet Protocol (VoIP)
software, and Libit Signal Processing Ltd., providing cable modem chipsets.
Coupled with Texas Instruments' current strengths in ADSL and programmable DSP,
these acquisitions will expand Texas Instruments' presence into all areas of the
broadband market.

Texas Instruments also announced the acquisition of ATL Research A/S,
bringing additional state-of-the-art radio frequency skills to enhance the
company's expertise in next-generation wireless communications.

On July 25, 1999, Texas Instruments entered into an agreement to purchase
Unitrode Corporation, a major designer and supplier of power management
components, in a stock-for-stock transaction pursuant to which Texas Instruments
will issue approximately 17.8 million shares of common stock, valued at
approximately $1.2 billion as of July 23, 1999.

Financial Summary. Texas Instruments revenues for the second quarter of
1999 were $2,346 million, up 8 percent from second quarter 1998 revenues of
$2,167 million, as growth in semiconductor more than offset the loss of revenue
from the divested memory business. Revenues were up 15 percent from the $2,039
million of the first quarter of 1999, led by increased shipments in
semiconductor. Increased semiconductor royalties and seasonal strength in the
Educational & Productivity Solutions (E&PS) business also contributed to the
sequential revenue growth.

PFO for the quarter was $454 million, up $492 million from the year-ago
quarter, due about equally to the absence of losses from the now divested memory
business and the non-recurrence of a special charge associated with a worldwide
restructuring of support functions and consolidation of manufacturing
operations, and to a lesser extent, increased profits in semiconductor. PFO was
up 52 percent from the first quarter of 1999, primarily due to growth in
semiconductor, and to a lesser extent, seasonal strength in the E&PS business as
well as the non-recurrence of a special charge associated with the consolidation
of semiconductor manufacturing operations in Japan.

Income for the quarter was $323 million, up $271 million from the second
quarter of 1998, due about equally to the absence of losses from the now
divested memory business and the non-recurrence of a

19
<PAGE> 26

special charge associated with a worldwide restructuring of support functions
and consolidation of manufacturing operations, and to a lesser extent, increased
profits in semiconductor.

Texas Instruments orders in the second quarter were $2,507 million, up 30
percent from the year-ago quarter, due to strength in semiconductor. Orders were
up 12 percent from the first quarter of 1999, due primarily to strength in
semiconductor, and to a lesser extent, seasonality in E&PS.

Results for the quarter include a special charge of $52 million for
in-process R&D associated with the previously announced acquisition of Libit
Signal Processing Ltd. In the year-ago quarter, there was a special charge of
$219 million for a worldwide restructuring of support functions and
consolidation of manufacturing operations, as well as an $83 million gain in the
quarter on the sale of Texas Instruments' shares in the Texas Instruments-Acer
joint venture to Acer Corporation. Results for the first quarter of 1999 include
special charges of $24 million. These charges include $14 million related to the
consolidation of semiconductor manufacturing operations in Japan, and $10
million for purchased in-process research and development associated with the
previously announced acquisition of Butterfly, VLSI, Ltd.

Excluding special items, PFO was $500 million, compared with $180 million
in the second quarter of 1998; income was $371 million, compared with $142
million; and EPS was $0.46, compared with $0.18. The company believes that, for
analytical purposes, the effect of these items should be excluded from operating
results because they are not necessarily indicative of future operating results
or of future financial condition. Additional information relating to these items
appears below under the heading "Special Charges and Gains."

Outlook. In line with the company's earlier expectations, Texas Instruments
anticipates continued growth in its semiconductor business in the second half of
the year, with revenues increasing sequentially.

The wireless market is expected to continue to be strong, driven by an
increase in new subscribers and replacement rates. Texas Instruments has raised
its estimate for industry sales of digital phones from 230 million to 245
million units this year. Texas Instruments expects continued strength in the
mass market for both DSP and analog catalog components, as these products
continue to penetrate new applications and markets. In the hard disk drive (HDD)
market, unit demand is expected to continue to grow, while pricing pressures may
restrict HDD component revenue growth, accelerating semiconductor integration.
Texas Instruments should benefit from this acceleration due to its strong
leadership in the HDD market, and ability to integrate its broad portfolio of
digital and analog HDD semiconductors.

Semiconductor. Semiconductor revenues of $1,883 million climbed 23 percent
from the second quarter of 1998, and were up 13 percent from the first quarter
of 1999, primarily due to increased shipments across a breadth of products, and
to a lesser extent, increased royalties.

DSP revenues were up 23 percent from the year-ago quarter, primarily due to
increases in the wireless and mass markets. DSP revenues were up 8 percent from
the first quarter of 1999, primarily due to gains in HDD and wireless. Analog
revenues increased 14 percent from the year-ago quarter, and were up 8 percent
from the first quarter of 1999, primarily due to wireless, and to a lesser
extent, the mass market.

Revenues for Texas Instruments' remaining semiconductor products, in the
aggregate, increased from both the year-ago quarter and the first quarter of
1999. These semiconductors represent a broad range of products, including
standard logic, application-specific integrated circuits (ASICs),
microcontrollers, and reduced instruction-set computing (RISC) microprocessors.

Semiconductor operating margin for the quarter was 25.7 percent, versus
24.9 percent in the year-ago quarter. Operating margin was up 5.4 percentage
points from the first quarter of 1999, primarily due to increased product
shipments, and to a lesser extent, the catch-up royalty payment from Hyundai.

Semiconductor orders were strong, increasing 46 percent from the year-ago
quarter, primarily due to increased demand for DSP and analog products, and
increasing 11 percent sequentially, primarily due to increased customer demand
across substantially all products.

20
<PAGE> 27

For the first six months of 1999, semiconductor revenues of $3,556 million
were up $423 million from the first six months of 1998, primarily due to
increased shipments in DSP and analog, and to a lesser extent, increased
royalties. Operating margin of 23.2 percent was about flat with the year-ago
period. Semiconductor orders for the first six months were up 32 percent from
the first half of 1998, primarily due to increased demand for DSP and analog
products.

During the quarter, Texas Instruments made good progress in expanding the
use of DSPs into new applications and markets. In the Internet audio market,
Texas Instruments teamed with Liquid Audio, Inc., the Fraunhofer Institute for
Integrated Circuits and SanDisk Corp. to offer the first complete solution for
secure downloading of music off the Internet onto digital personal audio
players. Earlier in the quarter, Thomson Consumer Electronics (marketer of RCA
home entertainment products), and separately Lucent Technologies and eDigital,
announced the development of Texas Instruments DSP-based personal audio players.

For the DSL market, Texas Instruments announced two next-generation ADSL
chipsets: the industry's first central office chipset that leverages a single
DSP to support four full-rate or G.lite ADSL lines, and a new highly integrated
solution for customer premise equipment such as modems and remote access
routers.

Texas Instruments also strengthened its product offerings with a number of
new analog and DSP products. In the quarter, Texas Instruments introduced a
record 59 analog catalog products, which included data converters and power
management devices optimized to work with Texas Instruments DSPs. Texas
Instruments introduced the 'C6203 DSP with an unprecedented combination of
speed, performance and integration to drive multichannel, multifunction
applications like third-generation (3G) wireless base stations and
telecommunications infrastructure. Eight out of the top ten wireless base
station manufacturers have designed this DSP into their 3G systems. Texas
Instruments also announced the industry's first 1.2-volt catalog DSP, from the
'C5000 family, that will significantly extend the battery life for applications
such as hearing aids and portable wireless devices.

Materials & Controls (M&C). Revenues for the M&C business were $256
million, up 5 percent from the second quarter of 1998, and up 4 percent
sequentially, primarily due to strong global market demand in automotive
sensors. Operating margin was 16.6 percent, up from the 15.1 percent of the
year-ago quarter, due about equally to continued gains from M&C's best-cost
producer strategy and increased product shipments.

For the first half of 1999, revenues were up slightly from a year ago, and
operating margin was up 1.5 percentage points, primarily due to gains in the
best-cost producer strategy.

During the quarter, the business announced the acquisition of Integrated
Sensor Solutions, Inc., with the transaction expected to close in the third
quarter. The acquisition brings additional expertise and a broadened product
portfolio to strengthen M&C's position in the automotive sensors market.

Educational & Productivity Solutions (E&PS). Revenues for the E&PS business
were $153 million, down 7 percent from the second quarter of 1998, primarily due
to shifting purchasing patterns from second quarter to third quarter, as some
major customers further align with back-to-school schedules. Revenues were up 89
percent from the first quarter of 1999, reflecting the seasonal pattern.
Operating margin was 28.1 percent, up significantly from the year-ago quarter's
22.4 percent, reflecting ongoing improvements in operating costs.

For the first half of 1999, revenues were $234 million, down slightly from
the same period a year ago. Operating margin was up 6.7 percentage points from a
year ago, reflecting improvements in operating costs.

Digital Imaging. Revenues in digital imaging increased from the year-ago
quarter, due to increased demand for Digital Micromirror Device(TM) (DMD)
chipsets for portable projectors. Loss from operations for the quarter continued
at about the same level as the year-ago quarter.

21
<PAGE> 28

Additional Financial Information. For the first six months of 1999, Texas
Instruments' revenues were $4,385 million, up from the $4,353 million in the
first half of 1998; operating margin was 17.2 percent, up 18.6 percentage
points; income was $567 million, up $504 million; and EPS was $0.70, compared
with $0.08. These changes were due to the absence of losses from the now
divested memory business, and to a lesser extent, about equally due to the
non-recurrence of a special charge associated with a worldwide restructuring of
support functions and consolidation of manufacturing operations, and a special
charge associated with the dissolution of the company's DRAM joint venture with
Hitachi.

Excluding special items: operating margin for the first six months of 1999
was 18.8 percent, compared with 9.2 percent in the year-ago period; income was
$631 million, compared with $318 million; and EPS were $0.78, compared with
$0.40.

Results for the first quarter of 1999 included special charges of $24
million, primarily for a consolidation of semiconductor manufacturing operations
in Japan. Last year's first quarter results included a special charge of $219
million for discontinuing a DRAM manufacturing joint venture with Hitachi, Ltd.,
and $25 million for purchased in-process R&D. Additional information relating to
these charges appears under the heading "Special Charges and Gains." Special
items for the second quarters of 1998 and 1999 were referenced above.

During the first six months of 1999, cash and cash equivalents plus
short-term investments decreased by $506 million to $1,743 million. The
acquisitions of Butterfly VLSI, Ltd. and Libit Signal Processing Ltd. required
approximately $382 million of cash in the first half of 1999. The sale of the
Micron subordinated note and other securities generated $172 million of cash.

Cash flow from operating activities was $526 million in the first half of
1999. Capital expenditures totaled $505 million in the first six months of 1999,
compared to $698 million in the first half of 1998, which included the divested
memory business. Capital expenditures totaled $302 million in the second quarter
of 1999 versus $314 million in the year-ago quarter. Capital expenditures
continue to be projected at about $1.3 billion for the year. Including
in-process R&D from acquisitions, R&D totaled $666 million in the first six
months of 1999, compared to $634 million in the first half of 1998. R&D totaled
$359 million in the second quarter, versus $306 million in the year-ago quarter.
R&D is now projected to increase to about $1.3 billion for the year, due to the
increased R&D from acquisitions, up from the previous $1.2 billion estimate.

Depreciation for the first half of 1999 was $461 million, compared to $583
million in the same time period a year ago. Depreciation for the second quarter
of 1999 was $236 million, versus $308 million in the year-ago quarter.
Depreciation for 1999 continues to be projected at $1.0 billion.

During the first half of 1999, Texas Instruments continued to purchase
shares of common stock as part of its program to reduce the potential dilutive
effect of shares to be issued under employee stock options. Texas Instruments
spent $151 million of cash for share purchases net of proceeds from sales and
other common stock transactions.

The income tax rate, excluding the effect of the second quarter 1999
non-deductible acquisition-related R&D charge, was 32 percent, which is the
estimated rate for the full year.

At the end of the second quarter, the debt-to-total capital ratio was .15
versus .17 at the end of 1998.

1998 Results of Operations Compared with 1997

Texas Instruments' revenues for 1998 were $8460 million, down 13% from
1997, due primarily to lower prices in DRAMs, and to a lesser extent, to the
absence of revenue due to the sale of the memory business. Operating margin was
4.7%, down from 6.3% in 1997, primarily due to lower DRAM prices, and to a
lesser extent due about equally to the special charges associated with a
worldwide restructuring of support functions and consolidation of manufacturing
operations, and with the discontinuance of the memory-chip manufacturing joint
venture with Hitachi, Ltd. Earnings per share were $0.51, compared with $0.38
for 1997.

22
<PAGE> 29

Other income for 1998 was $293 million, up $101 million from 1997 primarily
due to an $83 million gain in 1998 on the sale of Texas Instruments' shares in
the Texas Instruments-Acer joint venture to Acer Corporation. This was
insufficient to offset the decline in operating margin, resulting in income
before taxes of $617 million, down $96 million from 1997. Texas Instruments'
orders were $8069 million for 1998, compared with $9796 million in 1997,
primarily due to declines in memory orders.

While income before taxes declined, income after taxes for the year was
$407 million, up 35% from $302 million in 1997, due to the absence of the 1997
non-deductible acquisition-related R&D charge.

During the fourth quarter, Texas Instruments essentially completed the
restructuring announced in June of 1998. Annualized cost savings for the company
are estimated to be $270 million.

The results for the fourth quarter include special charges of $72 million,
substantially all of which was related to the closing of an assembly/test joint
venture with Samsung Electronica, Lda. in Portugal and the sale of the Aversa,
Italy plant. Of the $72 million, $35 million was for severance, $35 million for
other cash-related costs and $2 million for asset write-downs. Of the latter $35
million charge, $20 million was a cash payment required as part of an agreement
with the third-party buyer of a materials & controls manufacturing operation in
Europe. The balance was for previously-received government grants expected to be
repaid as a result of the closing of the European semiconductor assembly
operation. The year-ago quarter had a charge of $461 million for in-process R&D
associated with the acquisition of Amati Communications Corporation, along with
a pretax charge of $42 million for cost-reduction actions, primarily for
severance in the materials & controls business.

In addition to the fourth-quarter charges, 1998 earnings include special
charges of $477 million, of which $219 million was cash payments for
discontinuing the memory-chip manufacturing joint venture with Hitachi, Ltd.,
$25 million was for purchased in-process R&D and $233 million was for a
worldwide restructuring of support functions and consolidation of manufacturing
operations. Of the $233 million, $161 million was for severance, $55 million for
asset write-downs, including accelerated depreciation on fixed assets phased out
during 1998, and $17 million for vendor cancellation and lease charges. There
was also an $83 million pretax gain in the year on the sale of Texas
Instruments' shares in the Texas Instruments-Acer joint venture to Acer
Corporation. In 1997, special pretax charges, in addition to those in the fourth
quarter, were $100 million, primarily related to the sale of Texas Instruments'
mobile computing business and the termination of joint-venture agreements in
Thailand. There also was a $66 million special pretax gain for the sale of three
businesses, the largest of which was software.

Excluding the effect of the special items for 1998, operating margin for
the year was 10.9%, income was $719 million and earnings per share were $0.90.
Texas Instruments believes that, for analytical purposes, the effect of these
items should be excluded from operating results because they are not necessarily
indicative of future operating results or of future financial condition.
Additional information relating to these items appears below under the heading
"Special Charges and Gains."

Semiconductor. For 1998, semiconductor revenues and operating margin were
down slightly, and orders were down modestly, due to overall semiconductor
market weakness.

For the year, DSP revenues increased 29% to a record level, driven by
wireless. Analog revenues declined 4% for the year, as strength in wireless was
insufficient to offset weakness in other markets, particularly HDD.
Collectively, Texas Instruments' remaining semiconductor product areas saw
revenues down moderately from 1997, primarily due to overall semiconductor
market weakness.

In the fourth quarter, DSP and analog comprised 59% of Texas Instruments'
semiconductor revenues. Texas Instruments expects modest sequential revenue
growth in its semiconductor business in the first quarter of 1999, leading to
moderate growth for the year, based on continuing strength in wireless and
ongoing improvements in HDD and the mass markets. The HDD market represents a
growing opportunity for Texas Instruments, due to its market leadership and
extensive portfolio across the primary HDD integrated circuits (ASICs, read
channels, pre-amps, and servo control).

23
<PAGE> 30

Texas Instruments expects that 1999 earnings will reflect continued
improvement in semiconductor markets and the ongoing benefit of Texas
Instruments' strategic positioning, as well as the cost reductions realized from
completion of restructuring actions. In the first quarter, these improvements
may be largely offset by the transition to increased profit sharing, as the
company moves to higher operating margins. Profit-sharing expenses are accrued
quarterly, based on the company's full-year estimated operating profit margin.

Materials & Controls (M&C). For the full year, M&C revenues were down 1%
due to weak Asian markets. Operating margin was up for the year to 15.0%,
reflecting gains from the best-cost producer strategy. During 1998, plant
closings took place in Canada and Michigan, restructuring and early retirements
took place in Holland and Japan, and the Aversa, Italy plant was sold.

Educational & Productivity Solutions (E&PS). For the year, the E&PS
business showed a rise in operating margin of 3.4 percentage points to 16.6%, as
a result of cost improvements.

Digital Imaging. For 1998, the operation reduced its loss to one-half of
the 1997 level and continues to make progress on product positioning and
operational performance.

Divested Activities. For 1998, memory revenues were down 60% and orders
were down 62% from 1997 levels, primarily due to lower DRAM prices, with the
balance due to the divestiture of the memory business in the third quarter of
1998. Loss from memory operations was $498 million, versus a loss of $192
million in 1997.

Financial Condition. During 1998, cash and cash equivalents plus short-term
investments decreased by $771 million to $2249 million. The discontinuance of
the joint venture with Hitachi and the acquisition of those operating assets
(which were subsequently included in the sale of the memory business) required
approximately $300 million of cash in the first quarter. In addition, $91
million of cash was used to purchase the remaining outstanding shares of Amati
Communications Corporation's common stock in the first quarter. Under the terms
of the sale of Texas Instruments' memory business to Micron Technology, Texas
Instruments provided $550 million of cash financing to Micron in the third
quarter. At closing, Texas Instruments deferred an estimated pretax gain of $127
million on the sale until the recovery of the Texas Instruments-provided
financing. In the fourth quarter, Texas Instruments made an additional $130
million payment to Micron as part of the contractually required working capital.

In the memory transaction, Texas Instruments received approximately 28.9
million shares of Micron common stock, $740 million face value of a 6.5%
convertible note and $210 million face value of a 6.5% subordinated note. These
securities were originally valued at $1717 million. At year-end, market value
was $2441 million. Market value changes, net of tax, are recorded as an
adjustment to stockholders' equity.

Approximately $300 million of grants from the Italian government to Texas
Instruments' former memory operations in Italy are being reviewed in the
ordinary course by government auditors. Texas Instruments understands that these
auditors are questioning whether some of the grants were applied to purposes
outside the scope of the grants. Texas Instruments' deferred gain on the sale of
its memory business may be reduced to the extent that any grants are determined
to have been misapplied. Also, Texas Instruments understands that an Italian
prosecutor is conducting a criminal investigation concerning a portion of the
grants relating to specified research and development activities. Texas
Instruments believes that the grants were obtained and used in compliance with
applicable law and contractual obligations.

Cash flow from operating activities net of additions to property, plant and
equipment was $220 million in 1998.

Capital expenditures totaled $1031 million for 1998 versus $1238 million
for 1997. Depreciation was $1169 million for 1998 compared to $1109 million for
1997. Authorizations for future capital expenditures were $541 million at
December 31, 1998. Texas Instruments' capital expenditures for 1999 are forecast
to be level with 1998 at $1.0 billion. Depreciation for 1999 is expected to be
$1.0 billion. R&D is expected to be $1.1 billion, versus $1.2 billion in 1998.

24
<PAGE> 31

Texas Instruments maintains lines of credit to support commercial paper
borrowings and to provide additional liquidity. These lines of credit totaled
$669 million at December 31, 1998. Of this amount, $600 million exists to
support commercial paper borrowings or short-term bank loans.

During 1998, Texas Instruments repurchased approximately 9.0 million shares
of common stock, at a cost of $294 million, as a part of its previously stated
intent to neutralize the potential dilutive effect of shares to be issued under
employee stock options.

At the end of 1998, the debt-to-total-capital ratio was .17, compared to
the 1997 year-end value of .19.

As previously announced, the timing of Texas Instruments' dividend
declarations in 1998 was moved, effective March 1998, from the third month of a
quarter to the first month of the following quarter. As a result of this
one-time lag, 1998 contains three rather than four dividend declarations.

Market Risk Sensitive Instruments. The U.S. dollar is the functional
currency for financial reporting. In this regard, Texas Instruments uses forward
currency exchange contracts, including lira note currency swaps, to minimize the
adverse earnings impact from the effect of exchange rate fluctuations on Texas
Instruments' non-U.S. dollar net balance sheet exposures. For example, at
year-end 1998, Texas Instruments had forward currency exchange contracts
outstanding of $756 million (including $161 million to sell yen, $132 million to
buy lira and $105 million to buy deutsche marks). Similar hedging activities
existed at year-end 1997. Because most of the aggregate non-U.S. dollar balance
sheet exposure is hedged by these exchange contracts and swaps, a hypothetical
10% plus or minus fluctuation in non-U.S. currency exchange rates would not be
expected to have a material earnings impact, e.g., based on year-end 1998
balances and rates, a pretax currency exchange gain or loss of $6 million.

Texas Instruments has interest rate swaps that change the characteristics
of the interest payments on its $300 million of 6.125% notes due 2006 from
fixed-rate payments to short-term LIBOR-based variable rate payments in order to
achieve a mix of interest rates on the Texas Instruments' long-term debt which,
over time, is expected to moderate financing costs. The effect of these interest
rate swaps was to reduce interest expense by $3 million in 1998. The year-end
1998 effective interest rate for the $300 million of notes due 2006, including
the effect of the swaps, was approximately 4.6% (5.1% at year-end 1997). These
swaps are sensitive to interest rate changes. For example, if short-term
interest rates increase (decrease) by one percentage point from year-end 1998
rates, annual pretax interest expense would increase (decrease) by $3 million.

Texas Instruments' long-term debt has a fair value, based on current
interest rates, of approximately $1346 million at year-end 1998 ($1390 million
at year-end 1997). Fair value will vary as interest rates change. The following
table presents the aggregate maturities and historical cost amounts of the debt
principal and related weighted-average interest rates by maturity dates at
year-end 1998:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
U.S. DOLLAR AVERAGE LIRA AVERAGE
FIXED-RATE INTEREST FIXED-RATE INTEREST
MATURITY DATE DEBT RATE DEBT RATE
- ------------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C>
1999........................................ $ 235 6.74% $ 32 5.25%
2000........................................ 274 6.81% 38 5.09%
2001........................................ 105 7.90% 30 4.95%
2002........................................ -- n/a 27 4.73%
2003........................................ 133 8.47% 28 4.74%
Thereafter.................................. 356 6.40% 36 4.53%
------ ---- ---- ----
Total............................. $1,103 6.97% $191 4.89%
====== ==== ==== ====
</TABLE>

Total long-term debt historical cost amount at year-end 1998 was $1294
million.

Texas Instruments' cash equivalents and short-term investments are debt
securities with remaining maturities within three months (cash equivalents) and
beyond three months and within 13 months (short-
25
<PAGE> 32

term investments). Their aggregate fair value and carrying amount was $1771
million at year-end 1998 ($2566 million at year-end 1997). Fair value will vary
as interest rates change. The following table presents the aggregate maturities
of cash equivalents and short-term investments and related weighted-average
interest rates by maturity dates at year-end 1998:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
CASH
EQUIVALENTS AND AVERAGE
SHORT-TERM INTEREST
MATURITY DATE INVESTMENTS RATE
- ------------- --------------- --------
<S> <C> <C>
1999................................................. $1,681 5.32%
2000................................................. 90 5.12%
------ ----
Total...................................... $1,771 5.31%
====== ====
</TABLE>

Texas Instruments' investments at year-end 1998 consisted of the following
(amounts at year-end 1997 were not material):

- Equity investments -- primarily 28,933,092 Micron common shares acquired
in 1998, along with several other publicly traded investments.

- Debt investments -- 6.5% Micron convertible and subordinated notes
acquired in 1998. The convertible note (convertible into 12,333,358
Micron common shares at $60 per share) and the subordinated note have
face amounts of $740 million and $210 million. The notes, which mature
2005, have a weighted-average imputed interest rate of 8.7%.

- TI Ventures -- an externally managed venture fund that invests in the
development of new markets. As of year-end 1998, it had invested in 14
companies focused on next-generation applications of digital signal
processors.

- Other investments -- consist of mutual funds that are acquired to
generate returns that offset changes in certain liabilities related to
deferred compensation arrangements. The mutual funds hold a variety of
debt and equity investments.

The equity investments (fair value of $1516 million) and venture fund (fair
value of $37 million) are sensitive to equity price changes. For example, if
prices of the equity investments increase or decrease 10%, Texas Instruments
would record an increase or decrease in stockholders' equity of $152 million.
Similarly, if prices for the venture fund increase or decrease 10%, the company
would record an increase or decrease in other income (expense) of $4 million.
Changes in prices of the other investments are expected to offset related
changes in deferred compensation liabilities such that a 10% increase or
decrease in investment prices would not affect operating results.

Fair value of the debt investments ($978 million) will vary as interest
rates change (and also for the convertible note, as the underlying equity share
price changes). The following table presents the aggregate historical cost
maturities of debt investments and related weighted-average interest rates by
maturity dates:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
AVERAGE
DEBT INTEREST
MATURITY DATE INVESTMENTS RATE
------------- ----------- --------
<S> <C> <C>
1999 -- 2004................................................ None N/A
2005........................................................ $839 8.7%
</TABLE>

26
<PAGE> 33

1997 Results of Operations Compared with 1996

<TABLE>
<CAPTION>
CHANGE IN
CHANGE IN NET
ORDERS, REVENUES,
BUSINESS 1997 VS. 1996 1997 VS. 1996
-------- ------------- -------------
<S> <C> <C>
Semiconductor............................................... up 25% up 21%
Material & Controls......................................... up 9% up 7%
Educational & Productivity Solutions........................ up 5% up 6%
----- ------
Total Texas Instruments........................... up 6% down 2%
----- ------
Total Texas Instruments excluding businesses
sold............................................ up 22% up 19%
</TABLE>

Texas Instruments' orders in 1997 were $9796 million, compared with $9268
million in 1996. Net revenues in 1997 were $9750 million, compared with $9940
million in 1996. Financial results in 1997 and 1996 included revenues from Texas
Instruments' businesses that have been sold, primarily memory, software, mobile
computing and printers.

Net income for 1997 was $1805 million, which consisted of income from
continuing operations of $302 million, income from the discontinued defense
business of $52 million, gain on the sale of the discontinued defense business
of $1473 million, and an extraordinary charge of $22 million associated with
debt retirement. On a similar basis, net income for 1996 was $63 million, which
consisted of a loss from continuing operations of $46 million and income from
the discontinued defense business of $109 million. Earnings per share were $0.38
for 1997, compared with a loss of $0.06 in 1996.

Profit from operations in 1997 was $615 million, versus a loss of $26
million in 1996. The improvement was primarily due to higher semiconductor
profits, and to a lesser degree, due to the absence of losses from the sold
businesses, primarily memory, software and mobile computing. In 1996, these sold
businesses lost $229 million more than in 1997.

Results for the fourth quarter include a charge of $461 million for
in-process R&D associated with the acquisition of Amati Communications
Corporation, along with a pretax charge of $42 million for cost reduction
actions, primarily in the materials & controls business. In addition to the
fourth-quarter charges, the 1997 earnings include previously announced special
pretax charges of $56 million, primarily related to the sale of Texas
Instruments' mobile computing business, and $44 million for the termination of
joint-venture agreements in Thailand.

Results for 1997 also include a $66 million gain for the sale of three
businesses, the largest of which was software. The total of the 1997 special
items is equivalent to $0.64 per share. In 1996, special charges were $400
million before taxes, with $208 million being in the fourth quarter. These
charges were equivalent to $0.43 per share for the year.

Results for 1997 also included an accrual for profit sharing of $122
million, which was 7.82% of eligible payroll. There was no profit sharing in
1996.

Excluding these divested activities, Texas Instruments' orders were up 22%
for the year and revenues were up 19%, primarily due to growth in semiconductor.

Royalty revenues in 1997 were essentially steady with 1996.

Interest income for 1997 was up $84 million from 1996, primarily as a
result of investment of net proceeds from the sale of the defense business to
Raytheon.

The income tax rate for 1997 was 35%.

Texas Instruments' backlog of unfilled orders as of December 31, 1997, was
$1623 million, unchanged from year-end 1996.

27
<PAGE> 34

R&D for 1997 was $1075 million, excluding the $461 million charge for
in-process R&D associated with the Amati acquisition, compared with $989 million
in 1996, excluding the $192 million charge for in-process R&D associated with
the SSi acquisition.

Capital expenditures were $1238 million in 1997, compared with $2063
million in 1996. Depreciation for 1997 was $1109 million compared with $904
million in 1996.

Excluding the effect of the special items for 1997, operating margin was
12.4%, income was $809 million and earnings per share were $1.02. Texas
Instruments believes that, for analytical purposes, the effect of these items
should be excluded from operating results because they are not necessarily
indicative of future operating results or of future financial condition.
Additional information relating to these items appears below under the heading
"Special Charges and Gains."

Semiconductor: Orders in semiconductor for 1997 were $6610 million, up 25%
from $5267 million in 1996. The increase resulted from strong demand for digital
signal processing solutions (DSPS), as DSPS orders increased over 40%.
Semiconductor revenues were $6514 million, up 21% from $5385 million in 1996.
The increase in semiconductor resulted from an increase of more than 35% in DSPS
revenues due to increased shipments.

For the fourth quarter, semiconductor revenues, which include royalties
from semiconductor patent licenses, represented about 71% of Texas Instruments'
revenues. Digital signal processors plus mixed signal/analog represented about
54% of semiconductor. The remainder of semiconductor consists primarily of a
broad range of advanced products, including application-specific integrated
circuits, reduced instruction-set microprocessors, microcontrollers and standard
logic.

Revenues reached record levels for digital signal processing for both the
year and the fourth quarter. Mixed-signal/analog also had a strong year, with
record revenues for the year and fourth quarter, growing more than twice as fast
as the market in 1997.

Texas Instruments' other semiconductor products, such as microcontrollers
and application-specific integrated circuits, made good progress in growth and
profitability in 1997.

Semiconductor profit from operations increased from $1012 million in 1996
to $1546 million in 1997, and operating margin improved from 18.8% to 23.7%.
Results particularly benefited from higher DSPS shipments.

Materials & Controls (M&C). Orders in M&C of $972 million were up from $896
million in 1996, primarily due to TIRIS. Revenues of $954 million were up $64
million from 1996 due primarily to the growing acceptance of TIRIS in automotive
applications. PFO increased from $90 million in 1996 to $123 million in 1997,
with operating margin improving from 10.1% to 12.9%. The increase was due
primarily to manufacturing cost reduction.

Educational & Productivity Solutions (E&PS). Orders in E&PS were $448
million, up $22 million from 1996 as a result of continued growth in
instructional calculators. Revenues were $447 million, an increase of $24
million from 1996 also as a result of growth in instructional calculators.
Profit from operations increased from $56 million in 1996 to $59 million in
1997, and operating margin remained flat at 13.2%.

Digital Imaging. Texas Instruments' digital imaging business continued to
make progress throughout 1997, further focusing its strategy on key market
opportunities.

Divested Activities. Revenues for memory decreased $400 million in 1997,
compared to 1996, as DRAM prices continued to decline sharply.

28
<PAGE> 35

SPECIAL CHARGES AND GAINS

Second Quarter of 1999

In connection with Texas Instruments' acquisition of Libit Signal
Processing Ltd. (Libit) in the second quarter of 1999, Texas Instruments
recorded a charge of $52 million for the value of purchased in-process R&D
(purchased R&D) at the acquisition date, based upon the appraised value of the
related developmental projects. The purchased R&D projects were assessed,
analyzed and valued within the context and framework articulated by the
Securities and Exchange Commission.

Libit's research and development relates to silicon solutions and complex
system level internet telephony software used in cable modems, cable set-top
boxes, cable head-ends and digital television products, which empower high-speed
internet access.

Significant assumptions used in determining the value of purchased R&D for
Libit included projected operating cash flows and the discount rate. Projected
operating cash flows were expected to begin in 2000. The discount rate selected
for Libit's in-process technologies was 22 percent.

At the time of the acquisition, June 30, 1999, Libit management estimated
the remaining cost and time to complete the purchased R&D projects was $5
million and 492 engineer-months. The term "engineer-month" refers to the average
amount of research work expected to be performed by an engineer in a month.
Texas Instruments expects to essentially meet its original return expectations.

The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and uncertain
assumptions utilized in the valuation analysis of the in-process research and
development. Such uncertainties could give rise to unforeseen budget over-runs
and/or revenue shortfalls in the event that Texas Instruments is unable to
successfully complete and commercialize the projects. Texas Instruments'
management is primarily responsible for estimating the value of the purchased
R&D in all acquisitions accounted for under the purchase method.

First Quarter of 1999

In the first quarter of 1999, Texas Instruments announced a consolidation
of semiconductor manufacturing operations in Japan to improve manufacturing
efficiencies and reduce costs. This action resulted in a pretax charge of $14
million in the first quarter, of which $13 million was for severance for the
elimination of 153 jobs in Hatogaya, Japan, and $1 million for other related
costs. At June 30, 1999, the pay-out of the severance cost obligation had not
yet begun. Of the $14 million charge, $11 million was included in cost of
revenues and $3 million in marketing, general and administrative expense. The
primary benefit from this consolidation action was reduced people costs which
were estimated to reach $11 million annually. The benefit was expected to begin
in the fourth quarter of 1999.

In connection with Texas Instruments' acquisition of Butterfly in the first
quarter of 1999, Texas Instruments recorded a charge of $10 million for the
value of purchased in-process R&D (purchased R&D) at the acquisition date, based
upon the appraised value of the related developmental projects. The purchased
R&D projects were assessed, analyzed and valued within the context and framework
articulated by the Securities and Exchange Commission.

Butterfly's research and development relates to short distance wireless
semiconductor and systems technology. This technology is used to achieve higher
data rates at 2.4 GHz and above frequencies for use in voice-plus-data
transmission products.

Significant assumptions used in determining the value of purchased R&D for
Butterfly included projected operating cash flows and the discount rate.
Projected operating cash flows were expected to begin in 2000. The discount rate
selected for Butterfly's in-process technologies was 25%.

29
<PAGE> 36

month. At June 30, 1999, based on the latest available information, the
estimated cost and time to complete the in-process projects was approximately $8
million and 575 engineer-months. Texas Instruments expects to essentially meet
its original return expectations.

Fourth Quarter of 1998

In the fourth quarter of 1998, Texas Instruments took further steps to
enhance manufacturing efficiency, including the announced closing of a
semiconductor assembly operation and sale of a materials & controls
manufacturing operation, both in Europe. The sale was completed on December 31,
1998. The primary benefit from these actions was the consolidation of
manufacturing facilities, which increased efficiencies and reduced manufacturing
costs. Estimated savings from such actions were approximately $24 million
annually. The benefit was expected to begin in the first quarter of 1999. The
assembly operation closing, which is ongoing, affected 740 employees. As a
result of these actions, Texas Instruments took a fourth-quarter 1998 pretax
charge of $72 million, of which $27 million was included in cost of revenues,
$24 million in other income (expense) net and $21 million in marketing, general
and administrative expense. Of this $72 million charge, $35 million was for
severance, $35 million for other cash-related costs and $2 million for asset
write-downs, primarily to adjust fixed assets in the European materials &
controls operation to actual sale value. Of the $35 million severance charge,
$19 million had been paid by year-end 1998 and $16 million will be paid in 1999.
Of the other $35 million charge, $20 million was a cash payment required as part
of an agreement with the third-party buyer of a materials and controls
manufacturing operation in Europe. The balance was for previously-received
government grants expected to be repaid as a result of the closing of the
European semiconductor assembly operation.

Third Quarter of 1998

In the third quarter of 1998, Texas Instruments recorded a $14 million
charge for accelerated depreciation on fixed assets primarily located in a
semiconductor manufacturing facility in Singapore. This action was taken in
connection with the severance/manufacturing efficiency program announced during
the second quarter of 1998 (which program is more fully described below under
the heading Second Quarter of 1998). This asset write-down charge was included
in cost of revenues.

Second Quarter of 1998

In the second quarter of 1998, Texas Instruments announced that, as a
result of the various business divestitures over the past several years, the
pending sale of its memory business (subsequently completed in September 1998),
and weakness at that time in the semiconductor market environment, it was
implementing a severance/manufacturing efficiency program in order to more
closely match the size and cost of its support functions with Texas Instruments'
overall size and to further combine manufacturing resources for more efficient
operations. The primary benefit from this severance/manufacturing efficiency
program was reduced people costs; total benefits were estimated to reach $270
million annually. The benefit was expected to begin in the third quarter of
1998.

The program, which primarily affected Texas Instruments' corporate
activities and semiconductor business, included the elimination of 3,441 jobs
around the world through voluntary programs, attrition, outsourcing and layoffs,
as well as the closing of several facilities. As a result, Texas Instruments
took a pretax charge of $219 million in the second quarter of 1998, of which
$126 million was included in marketing, general and administrative expense and
$93 million in cost of revenues. Of the $219 million

30
<PAGE> 37

charge, $161 million was for severance, $41 million for asset write-downs and
$17 million for vendor cancellation and lease charges.

Of the $41 million for asset write-downs, $25 million was for U.S.
semiconductor inventories and $16 million was for fixed assets, primarily
accelerated depreciation on assets phased out during 1998 in connection with the
winding down of production at a semiconductor manufacturing facility located in
Singapore. The primary benefits from this consolidation action were increased
efficiencies and reduced manufacturing costs. Estimated savings from such
actions were approximately $9 million annually. The benefit was expected to
begin in the fourth quarter of 1998.

Of the $17 million for vendor cancellation and lease charges, $15 million
was for required vendor fees for cancellation of purchase contracts for
chemicals, supplies and equipment as a result of a U.S. facility shutdown.

At June 30, 1999, the program had essentially been completed, with most
severance costs paid except for $22 million, which will primarily be paid by the
end of 1999. Of the 3,441 jobs, 3,381 had been eliminated, and 60 will be
eliminated by the end of 1999.

In the second quarter of 1998, Texas Instruments sold its shares in the
Texas Instruments-Acer DRAM semiconductor manufacturing joint venture to Acer
Corporation for $120 million in cash. This sale resulted in a pretax gain of $83
million, included in other income.

First Quarter of 1998

In the first quarter of 1998, Texas Instruments' U.S. DRAM semiconductor
manufacturing joint venture with Hitachi, Ltd. was discontinued as a result of a
combination of severe price declines and overcapacity in the DRAM market. As
part of this first quarter discontinuance, Texas Instruments purchased the
assets of the venture for approximately $98 million. Also as part of this first
quarter discontinuance, Texas Instruments and Hitachi decided to assume and
share equally in the payment of the venture's obligations. Texas Instruments'
share of those payments was $219 million, which was paid and charged to cost of
revenues in the first quarter.

In connection with Texas Instruments' acquisitions of GO DSP and Spectron,
both of which occurred in the first quarter of 1998, Texas Instruments recorded
charges of $10 million and $15 million for purchased in-process R&D (purchased
R&D), based upon the appraised value of the related developmental projects. The
Income Approach, which included an analysis of the markets, cash flows, and
risks associated with achieving such cash flows, was the primary technique
utilized in valuing each purchased R&D project.

GO DSP's and Spectron's research and development related to DSP software
tools. These software tools, which include real-time operating systems, allow
DSP systems developers to improve productivity and reduce time-to-market. Texas
Instruments' goal in these acquisitions was to extend its leadership in digital
signal processing solutions by offering, a complete development environment,
simplifying DSP development, and making Texas Instruments' DSP solutions even
more attractive for a broad range of fast-growing markets.

Significant assumptions used in determining the value of purchased R&D for
GO DSP and Spectron included projected operating cash flows and the discount
rate. Projected operating cash flows were expected to begin in late 1998. The
discount rate selected for GO DSP's and Spectron's in-process technologies was
30%.

At the time of the acquisitions, GO DSP and Spectron management estimated
the remaining cost and time to complete the purchased R&D projects was
approximately $7 million and 540 engineer-months. The term "engineer-month"
refers to the average amount of research work expected to be performed by an
engineer in a month. All the in-process projects were essentially completed on
schedule. Texas Instruments expects to essentially meet its original return
expectations.

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The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and uncertain
assumptions utilized in the valuation analysis of the in-process research and
development. Uncertainties regarding projected operating cash flows could give
rise to unforeseen budget over-runs and/or revenue shortfalls in the event that
Texas Instruments is unable to successfully commercialize the projects. Texas
Instruments management is primarily responsible for estimating the value of the
purchased R&D in all acquisitions accounted for under the purchase method.

Fourth Quarter of 1997

In connection with Texas Instruments' acquisition of Amati Communications
Corporations (Amati) in the fourth quarter of 1997, Texas Instruments recorded a
charge of $461 million for the value of purchased in-process R&D (purchased R&D)
at the acquisition date, based upon the appraised value of the related
developmental projects. The Income Approach, which included an analysis of the
markets, cash flows, and risks associated with achieving such cash flows, was
the primary technique utilized in valuing each purchased R&D project.

Amati's research and development related to Digital Subscriber Line (DSL)
system designs for the Internet and other uses. DSL technology targets the local
exchange carrier market since the technology permits the transmission of data at
high speeds over the existing copper lines of the local exchange carriers.
Currently, analog modems are noted as being slow in their transmission speed,
and ADSL digital processing technology is expected to fill the need for
additional bandwidth requirements. VDSL transmits high-speed data over short
reaches of twisted-pair copper telephone wire, with a range of speeds that
depends on actual line length.

Significant assumptions used in determining the value of purchased R&D for
Amati included projected operating cash flows and the discount rate. Projected
operating cash flows were expected to begin in 1999. The discount rate selected
for Amati's in-process technologies was 30%.

At the time of the acquisition, Amati management estimated the remaining
cost to complete the purchased R&D projects to be approximately $13 million with
a remaining time requirement of approximately 1,300 engineer-months. The term
"engineer-month" refers to the average amount of research work to be performed
by an engineer in a month. All the in-process projects were essentially
completed on schedule. Several products have been released, and although the DSL
market has developed more slowly than expected, Texas Instruments expects
improvements in the near term in Internet-related demand. As this occurs, Texas
Instruments will be one of a very few suppliers who have demonstrated
interoperability and standards compliance. Thus, Texas Instruments expects to
essentially meet its original return expectations.

The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and uncertain
assumptions utilized in the valuation analysis of the in-process research and
development. Uncertainties regarding projected operating cash flows could give
rise to unforeseen budget over-runs and/or revenue shortfalls in the event that
Texas Instruments is unable to successfully commercialize the projects. Texas
Instruments' management is primarily responsible for estimating the value of the
purchased R&D in all acquisitions accounted for under the purchase method.

In the fourth quarter of 1997, Texas Instruments took a pretax charge of
$42 million, of which $30 million was included in cost of revenues and $12
million in marketing, general and administrative expense, primarily for
severance costs related to cost-reduction actions by the materials & controls
business. These actions, which are expected to be completed in first-quarter
1999, affected approximately 260 employees. The terminated employees were in
plants located in Holland, Italy, Canada and Michigan. The primary benefit from
this materials & controls action was reduced people costs, which were estimated
to reach $20 million annually. The benefit was expected to begin in the first
quarter of 1998.

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Second Quarter of 1997

In the second quarter of 1997, Texas Instruments sold several activities,
principally software, for a pre-tax gain of $66 million, after transaction
costs. These transaction costs totaled $54 million and included severance of $17
million for 372 employees, who left Texas Instruments within three months of the
related divestitures, $24 million for vendor and warranty obligations, $4
million for professional fees, and $9 million for various other costs. The
primary benefit from the related divestitures was the cessation of the software
business, which was operating at a loss of approximately $28 million in the
first half of 1997.

First Quarter of 1997

In the first quarter of 1997, Texas Instruments sold its mobile computing
business and terminated its digital imaging printing development program. The
primary benefits from these actions were the divestiture of a business operating
at a loss and the termination of the research and development program. The
divested business had a $180 million loss in 1996. The cost of the research and
development program in 1996 was $32 million. As a result of these actions, Texas
Instruments took a first-quarter pretax charge of $56 million, of which $28
million was included in cost of revenues and $28 million in marketing, general
and administrative expense. Of this $56 million charge, $27 million was for
severance for involuntary reductions worldwide. These severance actions were
essentially completed by the end of the quarter and affected approximately 1,045
employees. The balance of $29 million was for other costs associated with the
business sale and program termination, including vendor cancellation and lease
charges. Essentially all costs were paid in 1998.

Fourth Quarter of 1996

In the fourth quarter of 1996, Texas Instruments took a pretax charge of
$208 million, of which $169 million was included in cost of revenues and $39
million was included in marketing, general and administrative expense. Of the
$208 million, $91 million was for severance for employment reduction actions in
the United States and selected reductions worldwide. The primary benefit from
these actions was reduced people costs, which were estimated to reach $195
million annually. The benefit was expected to begin in the first quarter of
1997. These actions, which primarily involved the semiconductor business as well
as divested activities, were essentially completed by year-end 1996 and affected
approximately 2,600 employees. Of the severance cost of $91 million, $34 million
was paid in 1996 and $57 million was paid in 1997.

The balance of this charge, $117 million, was for vendor cancellation and
other cash-related costs of $47 million and asset write-downs of $70 million on
several product lines, primarily mobile computing, an operation divested in
first-quarter 1997. The asset write-downs were to adjust inventory and fixed
assets to actual sale value. Of the $70 million asset write-downs charges, $54
million was for mobile computing.

With respect to this $54 million charge, $47 million was for inventory and
$7 million was for fixed assets. The balance of $16 million included a $6
million charge against operating assets for the impact of the expected first
quarter 1997 termination of Texas Instruments' digital imaging printing
development program. The benefit of this action is described above under the
heading First Quarter of 1997. The remainder, $10 million, was to write down the
operating assets of Texas Instruments' Telecom business, which was held for
sale, and sold in the second quarter of 1997 for a nominal gain. The primary
benefit from this action was the divestiture of a business operating at a loss
($14 million in 1996).

Third Quarter of 1996

In connection with Texas Instruments' acquisitions of Silicon Systems, Inc.
(SSi) in the third quarter of 1996, Texas Instruments recorded a charge of $192
million for the value of purchased in-process R&D (purchased R&D) at the
acquisition date, based upon the appraised value of the related developmental
projects. The Income Approach, which included an analysis of the markets, cash
flows, and risks

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<PAGE> 40

associated with achieving such cash flows, was the primary technique utilized in
valuing each purchased R&D project.

SSi's research and development related to analog technology for hard disk
drives and removable storage devices. Historically, SSi had primarily emphasized
producing integrated circuits for the hard disk drive market. As of the
acquisition date, SSi's product development activities for this market had been
expanded to include other magnetic optical storage devices that require advanced
technology and performance.

Significant assumptions used in determining the value of purchased R&D for
SSi included projected operating cash flows and the discount rate. Projected
operating cash flows were expected to commence in late 1996. The discount rate
selected for SSi's in-process technologies was 22%.

At the time of the acquisition SSi management estimated the remaining cost
to complete the purchased R&D projects to be approximately $16 million, over a
9-month period. All the in-process projects were essentially completed on
schedule. Texas Instruments expects to essentially meet its original return
expectations.

The relative stage of completion and projected operating cash flows of the
underlying in-process projects were the most significant and uncertain
assumptions utilized in the valuation analysis of the in-process research and
development. Uncertainties regarding projected operating cash flows could give
rise to unforeseen budget over-runs and/or revenue shortfalls in the event that
Texas Instruments is unable to successfully commercialize the projects. Texas
Instruments' management is primarily responsible for estimating the value of the
purchased R&D in all acquisitions accounted for under the purchase method.

YEAR 2000

Since 1995, Texas Instruments has been actively engaged in addressing Year
2000 (Y2K) issues. These result from the use of two-digit, rather than
four-digit, year dates in software, a practice which could cause date-sensitive
systems to malfunction or fail because they may not recognize or process date
information correctly.

State of Readiness: To manage its Y2K program, Texas Instruments has
divided its efforts into four program areas:

- Information Technology (computer hardware, software and electronic data
interchange (EDI) interfaces);

- Physical Plant (manufacturing equipment and facilities);

- Products (including product development); and

- Extended Enterprise (suppliers and customers).

For each of these program areas, Texas Instruments has used a four-step
approach:

- Ownership (creating awareness, assigning tasks);

- Inventory (listing items to be assessed for Y2K readiness);

- Assessment (prioritizing the inventoried items, assessing their Y2K
readiness, planning corrective actions, making initial contingency
plans); and

- Corrective Action Deployment (implementing corrective actions, verifying
implementation, finalizing contingency plans).

At June 30, 1999, the Ownership, Inventory, Assessment and Corrective
Action Deployment steps were essentially complete for priority items in each of
the four program areas. Texas Instruments considers priority items to be those
that could significantly disrupt Texas Instruments' business operations.

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<PAGE> 41

Further discussion of the status as of June 30, 1999, by program area
follows:

- Information Technology: Corrective actions have been deployed for
substantially all of Texas Instruments' legacy business strategic
information systems (manufacturing, marketing, financial and human
resources). In the ordinary course of business, Texas Instruments
continues to install new business systems as appropriate. Verification of
Y2K readiness is incorporated into the process of implementing these new
systems. Corrective action deployment of infrastructure hardware and
software that support Texas Instruments' enterprise-wide networks and
servers is essentially complete. Texas Instruments has also deployed an
assessment tool and corrective action process for desktop computers.
Texas Instruments' EDI interfaces have been tested with major customers
and suppliers, and Texas Instruments believes that those interfaces are
Y2K ready.

- Physical Plant: Corrective action deployment for manufacturing equipment
and facilities is essentially complete.

- Products: Texas Instruments is essentially complete with the Y2K
readiness assessment of its products and is providing product status
information on its company web site. Divested product lines were not part
of this assessment. The effort has included semiconductor devices sold
within the past five years. Texas Instruments' assessment indicates that
the majority of semiconductor products either have no date logic or are
programmable devices that require customer assessment of any software and
firmware or other elements added by or at the request of Texas
Instruments' customers. The likelihood and extent of Y2K problems
relating to devices that require customer assessment are unknown. Texas
Instruments has identified date-related issues with certain of Texas
Instruments' semiconductor application software development tools and is
providing corrective software patches. The company believes these
development tool issues are unlikely to cause significant problems for
Texas Instruments customers. Assessment of products of the Materials &
Controls, Educational & Productivity Solutions, and Digital Light
Processing businesses indicates they are either Y2K ready or have no date
logic.

- Extended Enterprise: Texas Instruments' Y2K supplier program has
attempted to assess the readiness of Texas Instruments suppliers,
focusing on those that could significantly disrupt Texas Instruments'
business operations. Texas Instruments began contacting its suppliers in
1997 to assess their readiness. This effort has included sending Y2K
surveys and conducting onsite Y2K reviews with selected suppliers. Texas
Instruments' assessment of its critical suppliers is essentially
complete, and contingency plans have been developed for those suppliers
that were not assessed Y2K ready by June 30. Texas Instruments also has
discussed Y2K status with selected strategic customers.

- Other Activities: Texas Instruments continues to review Y2K issues
relating to its information technology, physical plant, products,
suppliers and customers. As noted above, Texas Instruments has developed
a set of contingency plans as of June 30, 1999 on the basis of
information available as of that time. It will refine those plans and
implement them as needed in response to further information gathered
through the end of the year. In addition, Texas Instruments intends to
take actions to verify and maintain its Y2K readiness and finalize its
year-end operating plan (for example, its plan for staffing to address
Y2K issues that arise during the transition to 2000).

- Costs to Address Y2K Issues: Texas Instruments' estimated aggregate costs
for its Y2K activities from 1995 through 2000 are expected to range from
$65 million to $75 million. Through June 30, 1999, Texas Instruments has
spent approximately $60 million.

- Risks of Y2K Issues and Contingency Plans: Texas Instruments' contingency
planning process is intended to mitigate worst-case business disruptions.
Texas Instruments believes that its most reasonably likely worst-case Y2K
scenario would relate to disruption of supply from third parties as a
result of Y2K problems experienced by those parties or their suppliers.
Texas Instruments' manufacturing, sales and service operations are
dependent on an ongoing supply of infrastructure services (such as
electricity, water and telecommunication services), materials and
equipment spare

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<PAGE> 42

parts from third parties as well as third-party transportation services. In many
cases, Texas Instruments depends on a limited number of suppliers for those
services and materials. A disruption in supply could interrupt manufacturing
operations and result in damage to work in process as well as delays in
product deliveries to customers. These results could affect Texas
Instruments revenues and lead to claims by customers against the company.
As part of contingency planning to address these risks, Texas Instruments
is considering alternatives such as the creation of buffer inventories of
critical supplies and identification of alternative suppliers.

Texas Instruments customers may experience Y2K disruptions that affect the
quantity or timing of their orders to Texas Instruments or their ability to make
timely payment. If these disruptions occur, Texas Instruments revenues and cash
flow may be affected. Texas Instruments cannot predict the likelihood of these
disruptions or the extent of their impact on Texas Instruments. It is unknown
whether customers will change their spending patterns in preparation for the
Year 2000 (for example, by accelerating or delaying orders).

Certain discontinued products and divested product lines present Y2K
issues. In the event of product failure, these issues could expose Texas
Instruments to product liability or other types of claims. It is difficult to
predict the extent of potential liability. However, for several reasons, Texas
Instruments does not expect these issues to result in any claim that will have a
material effect on its results of operations. The reasons include the age of the
products (resulting in many being retired from service or upgraded before the
Year 2000), expiration of applicable warranty periods, widespread customer
awareness of Y2K risks, and the efforts of Texas Instruments and the acquirers
of its divested product lines to alert customers to Y2K issues affecting the
products. Texas Instruments continues to review legal risks that may be
associated with discontinued products and divested product lines.

The preceding Year 2000 disclosure is designated a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR POWER TRENDS

BACKGROUND

Power Trends was incorporated in September 1987 to meet the need for small
and highly efficient integrated switching regulators and DC-to-DC converters in
the 5-to-100 watt range for direct use on circuit boards. It focuses on three
end-product segments: computer systems, communications and industrial equipment.
Power Trends is a designer, manufacturer and supplier of on-board, low-voltage,
modular power solutions and to date has sold over 12 million units.

YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998

Net sales. Net sales increased $11,010,000, or 39.3%, to $39,015,000 during
the year ended June 30, 1999 from $28,005,000 during the year ended June 30,
1998. This growth in sales was primarily a result of the success at key accounts
of new products introduced during fiscal years 1997 and 1998.

Cost of goods sold. Cost of goods sold increased $6,504,000, or 35.6%, to
$24,787,000 during the year ended June 30, 1999 from $18,282,000 during the year
ended June 30, 1998. This increase was primarily due to the substantial increase
in sales during fiscal year 1999 over sales during the prior fiscal year. Gross
profit increased $4,505,000, or 46.3%, to $14,228,000, or 36.5% of net sales,
from 9,723,000, or 34.7% of net sales, during fiscal year 1998. This increase
was primarily attributable to lower component costs, improved manufacturing
yield and the absorption of manufacturing overhead over the larger number of
units sold.

Operating expenses. Operating expenses, consisting of general and
administrative, research and development and selling and marketing expenses,
increased $1,815,000, or 25.3%, to $8,979,000 during the year ended June 30,
1999 from $7,164,000 during the year ended June 30, 1998. As a percentage of net
sales, operating expenses declined from 25.6% in fiscal year 1998 to 23.0% in
fiscal year 1999. This decline was primarily the result of leveraging selling
and marketing expenses and general and administrative expenses, both of which
declined as a percentage of net sales.

General and administrative expenses. General and administrative expenses
increased $252,000, or 25.5%, to $1,233,000 during the year ended June 30, 1999
from $981,000 during the year ended June 30, 1998. As a percentage of net sales,
general and administrative expenses declined from 3.5% in fiscal year 1998 to
3.2% in fiscal year 1999.

Research and development expenses. Research and development expenses
increased $841,000, or 36.3%, to $3,158,000 during the year ended June 30, 1999
from $2,317,000 during the year ended June 30, 1998. As a percentage of net
sales, research and development expenses declined from 8.3% in fiscal year 1998
to 8.1% in fiscal year 1999.

Selling and marketing expenses. Selling and marketing expenses increased
$722,000, or 18.7%, to $4,588,000 during the year ended June 30, 1999 from
$3,866,000 during the year ended June 30, 1998. As a percentage of net sales,
selling and marketing expenses declined from 13.8% in fiscal year 1998 to 11.8%
in fiscal year 1999.

Interest income and interest expense. Interest income increased $33,000
during the year ended June 30, 1999 to $63,000 from $30,000 during the year
ended June 30, 1998. This increase was a result of higher invested cash balances
attributable to the increase in net income. Interest expense, consisting of
interest on capital lease obligations and term loans for equipment purchases,
increased $7,000 to 279,000 during fiscal year 1999 from $272,000 during fiscal
year 1998.

Income tax expense. The effective tax rate of 4.8% for the year ended June
30, 1999 reflects the utilization of Power Trends' net operating loss
carryforwards and tax credit carryforwards.

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YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997

Net sales. Net sales increased $9,597,000, or 52.1%, to $28,005,000 during
the year ended June 30, 1998 from $18,408,000 during the year ended June 30,
1997. This growth in sales was primarily a result of successful market
penetration at new and existing key accounts.

Cost of goods sold. Cost of goods sold increased $6,366,000, or 53.4%, to
$18,282,000 during the year ended June 30, 1998 from $11,916,000 during the year
ended June 30, 1997. This increase was primarily due to the substantial increase
in sales during fiscal year 1998 over sales during fiscal year 1997. Gross
profit increased $3,231,000, or 49.8%, to $9,723,000 during fiscal year 1998
from $6,492,000 during fiscal year 1998. As a percentage of net sales, gross
profits decreased to 34.7% during fiscal year 1998 from 35.3% during fiscal year
1997. This decrease in gross profits as a percentage of net sales was primarily
attributable to more aggressive pricing at new key accounts, partially offset by
the absorption of manufacturing overhead over a larger number of units sold.

Operating expenses. Operating expenses, consisting of general and
administrative, research and development and selling and marketing expenses,
increased $1,625,000, or 29.4%, to $7,164,000 during the year ended June 30,
1998 from $5,539,000 during the year ended June 30, 1997. As a percentage of net
sales, operating expenses declined from 30.1% in fiscal year 1997 to 25.6% in
fiscal year 1998. This decline was primarily the result of greater leverage in
all three areas of operating expense attributable largely to significant
investments in research and development and marketing and sales during the
latter half of fiscal year 1996.

General and administrative expenses. General and administrative expenses
increased $181,000, or 22.7%, to $981,000 during the year ended June 30, 1998
from $799,000 during the year ended June 30, 1997. As a percentage of net sales,
general and administrative expenses declined from 4.3% in fiscal year 1997 to
3.5% in fiscal year 1998.

Research and development expenses. Research and development expenses
increased $589,000, or 34.1%, to $2,317,000 during the year ended June 30, 1998
from $1,728,000 during the year ended June 30, 1997. As a percentage of net
sales, research and development expenses declined from 9.4% in fiscal year 1997
to 8.3% in fiscal year 1998.

Selling and marketing expenses. Selling and marketing expenses increased
$855,000, or 28.4%, to $3,866,000 during the year ended June 30, 1998 from
$3,011,000 during the year ended June 30, 1997. As a percentage of net sales,
selling and marketing expenses declined from 16.4% in fiscal year 1997 to 13.8%
in fiscal year 1998.

Interest income and interest expense. Interest income decreased $13,000
during the year ended June 30, 1998 to $30,000 from $43,000 during the year
ended June 30, 1997. Interest expense, consisting of interest on capital lease
obligations and term loans for equipment purchases, increased $68,000 to
$272,000 during fiscal year 1998 from $204,000 during fiscal year 1997.

Income tax expense. The effective tax rate of 2.6% for the year ended June
30, 1998 reflects the utilization of Power Trends' net operating loss
carryforwards and tax credit carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

Power Trends has been financed principally through the sale of preferred
stock to investors. Through the last rounds of preferred stock financing, which
were completed in February and December 1994, purchasers of preferred stock
invested a total of $10,415,000, net of associated expenses. These funds were
used to fund operating losses, capital expenditures and working capital
requirements.

Power Trends' preferred stock is redeemable by the holders under certain
circumstances. The redemption price is the original cost plus 8.0% per annum
from the date of issuance. At June 30, 1999, the redemption value of Power
Trends's outstanding preferred stock was $19,770,000.

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<PAGE> 45

Power Trends has also been able to obtain equipment lease financing and
term loans to finance its equipment purchases and a revolving line of credit for
working capital purposes. At June 30, 1999, Power Trends' total long-term debt
was $3,116,000. In August 1999, Power Trends renewed its $1,000,000 revolving
line of credit for working capital purposes, established a $1,000,000
non-revolving line of credit for equipment purchases and consolidated its
outstanding terms loans for $2,868,000.

At June 30, 1999, Power Trends had working capital of $7,752,000 compared
to $5,020,000 and $3,170,000 at June 30, 1998 and 1997, respectively.

Net cash provided by operating activities was $4,510,000 during the year
ended June 30, 1999 compared to $1,356,000 for the year ended June 30, 1998 and
$890,000 for the year ended June 30, 1997.

Net cash used in investing activities was $2,820,000 during the year ended
June 30, 1999 compared to $1,954,000 for the year ended June 30, 1998 and
$1,959,000 for the year ended June 30, 1997. The increase in net cash used in
investing activities during fiscal year 1999 over fiscal year 1998 was primarily
the result of additional capital expenditures to meet manufacturing requirements
as a result of increased sales.

Net cash provided by financing activities was $119,000 during the year
ended June 30, 1999, compared to $636,000 for the year ended June 30, 1998 and
$666,000 for the year ended June 30, 1997.

YEAR 2000

Power Trends conducted an extensive review of potential year 2000 issues
and has developed and substantially completed the implementation of a plan to
modify its information systems in anticipation of the year 2000. The cost of
implementing this plan was approximately $120,000. Power Trends has not had to
redesign any of its products in anticipation of the year 2000 because none of
its products contains any circuitry that relies on processing, providing or
receiving date-related data. On the basis of questionnaires returned to Power
Trends, Power Trends does not believe that its customers, suppliers or vendors
will encounter year 2000 difficulties that will have a material impact on Power
Trends results of operations.

The preceding Year 2000 disclosure is designated a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act.

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THE POWER TRENDS SPECIAL MEETING

GENERAL

We are furnishing this proxy statement/prospectus to you in connection with
the solicitation of proxies by the Power Trends board of directors for use at
the Power Trends special meeting of stockholders. This proxy
statement/prospectus, the attached notice of special meeting of stockholders and
the enclosed form of proxy are first being mailed to the stockholders of Power
Trends on or about November 2, 1999.

MATTERS TO BE CONSIDERED AT THE POWER TRENDS SPECIAL MEETING

At the Power Trends special meeting, Power Trends stockholders will
consider and vote on the proposal to approve and adopt the plan of merger set
forth in the merger agreement.

A copy of the merger agreement is attached as Annex A to this proxy
statement/prospectus. We urge you to read carefully the merger agreement.

AFTER CAREFUL CONSIDERATION, THE POWER TRENDS BOARD OF DIRECTORS HAS
UNANIMOUSLY DETERMINED THAT THE MERGER ON SUBSTANTIALLY THE TERMS AND CONDITIONS
SET FORTH IN THE MERGER AGREEMENT IS ADVISABLE AND IS FAIR TO, AND IN THE BEST
INTERESTS OF, POWER TRENDS AND ITS STOCKHOLDERS. THE POWER TRENDS BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF POWER TRENDS COMMON STOCK AND PREFERRED
STOCK VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER.

DATE, TIME AND PLACE

The Power Trends special meeting is scheduled to be held at 10:00 a.m.,
local time, on Monday, November 22, 1999, at the principal offices of Power
Trends at 27715 Diehl Road, Warrenville, Illinois 60555.

PLEASE COMPLETE THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED PREPAID
RETURN ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR SHARES MAY BE REPRESENTED AND
VOTED AT THE SPECIAL MEETING.

You should not send your Power Trends stock certificates with your proxy. A
transmittal form with instructions for the surrender of your Power Trends common
stock and preferred stock certificates will be mailed to you as soon as
practicable after completion of the merger.

RECORD DATE; QUORUM

The Power Trends board of directors has fixed the close of business on
October 29, 1999 as the record date for the determination of the stockholders
entitled to notice of, and to vote at, the Power Trends special meeting. On that
date, Power Trends had 5,555,487 shares of common stock outstanding. The holders
of these shares will vote together as a separate class from the preferred stock
and will be entitled to one vote per share on the merger. In addition, as of the
record date, Power Trends had 100,740 shares of preferred stock outstanding. The
holders of those shares will vote together as a separate class from the common
stock and will be entitled to one vote per share on the merger. The holders of
common stock and the holders of preferred stock will also vote together, with
each holder of common stock entitled to one vote per share and each holder of
preferred stock entitled to 100 votes per share.

A quorum is present at a special meeting if a majority of the shares of
Power Trends common stock and a majority of the shares of Power Trends preferred
stock entitled to vote at the meeting are represented in person or by proxy.
Shares of Power Trends stock represented at the special meeting, but abstaining
from voting, will be treated as present at the special meeting for purposes of
determining the presence or absence of a quorum for the transaction of business.

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VOTES REQUIRED

The merger will be approved and adopted if (i) the holders of shares
representing at least two-thirds of the votes that may be cast by the holders of
all of the shares of Power Trends common stock vote in favor of approval of the
merger, (ii) the holders of shares representing at least two-thirds of the votes
that may be cast by the holders of all of the shares of Power Trends preferred
stock vote in favor of approval of the merger, and (iii) holders of shares
representing at least two-thirds of the votes that may be cast by the holders of
all of the shares of Power Trends common stock and preferred stock (with each
share of common stock having one vote and each share of preferred stock having
100 votes) vote in favor of approval of the merger.

VOTING BY POWER TRENDS' EXECUTIVE OFFICERS, DIRECTORS AND CERTAIN STOCKHOLDERS

As of the record date, Power Trends' officers and directors owned and held
the power to vote 1,780,269 shares of Power Trends common stock and 6,360 shares
of Power Trends preferred stock, representing approximately 32% and 6.3% of the
voting power of the outstanding Power Trends common stock and preferred stock,
respectively, and have each indicated their present intention to vote, or cause
to be voted, such shares in favor of approval of the merger. In addition, to
induce Texas Instruments to enter into the merger agreement, certain
stockholders of Power Trends have agreed, by entering into a voting agreement
and without any additional consideration being paid to them, to vote the total
of 1,321,518 shares of Power Trends common stock and 105,900 shares of Power
Trends preferred stock held by them on the date of the execution of the voting
agreement, representing approximately 43% and 84% of the total then outstanding
voting power of Power Trends common stock and preferred stock, respectively, in
favor of approving the merger at the Power Trends special meeting. Additionally,
certain holders of Power Trends preferred stock agreed to convert a sufficient
number of shares of preferred stock into Power Trends common stock to assure the
requisite approvals of the merger by the holders of each of the Power Trends
common stock and preferred stock. On October 27, 1999, 25,000 shares of Power
Trends preferred stock were converted into 2,500,000 shares of common stock
pursuant to such agreement. After giving effect to such conversion, the
stockholders who are parties to the voting agreement owned, as of the record
date, approximately 69% of the outstanding shares of Power Trends common stock
and approximately 80% of the outstanding shares of Power Trends preferred stock.
A copy of the voting agreement is attached as Annex B to this proxy
statement/prospectus.

VOTING OF PROXIES; REVOCABILITY OF PROXIES

Shares of Power Trends common stock and preferred stock represented by
properly executed proxies received in advance of the special meeting will,
unless these proxies have been properly revoked, be voted in accordance with the
instructions indicated on such proxies or, if no instructions have been
indicated, will be voted in favor of approval of the merger, and, in the
discretion of the individuals named in the accompanying proxy card, on any other
matters which may properly come before the Power Trends special meeting.
Abstentions may be specified with respect to the approval and adoption of the
merger by properly marking the "ABSTAIN" box on the proxy card for such
proposal.

Any proxy may be revoked by the stockholder giving it, at any time prior to
its being exercised, by filing a notice of revocation with the Secretary of
Power Trends at the address given on the notice of stockholders' meeting
accompanying this proxy statement/prospectus, by submitting a duly executed
proxy card bearing a later date than an earlier submitted proxy. Any proxy may
also be revoked by the stockholder's attendance at the Power Trends special
meeting and voting in person. A notice of revocation need not be on any specific
form, but must be in writing.

Only shares affirmatively voted for the approval of the merger, including
properly executed proxies that do not contain voting instructions, will be
counted as favorable votes for that proposal. If a Power Trends stockholder
abstains from voting or does not vote, either in person or by proxy, it will
have the same effect as if that Power Trends stockholder had voted against the
approval and adoption of the merger.

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The persons named as proxies by a stockholder may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the proposal to approve
the merger will be voted in favor of any such adjournment or postponement.

Power Trends does not expect that any matter other than the proposal to
approve the merger will be brought before the special meeting. If, however, the
Power Trends board of directors properly presents other matters, the persons
named as proxies will vote in accordance with their discretion.

SOLICITATION OF PROXIES

Proxies are being solicited by and on behalf of the Power Trends board of
directors. Power Trends will bear the costs relating to the solicitation of
proxies. In addition to solicitation by mail, Power Trends' directors, officers
and employees, without additional remuneration, may solicit proxies by
telephone, facsimile machine and personal interviews, and Power Trends reserves
the right to retain outside agencies for the purpose of soliciting proxies,
which may be paid customary fees for performing those services.

THE MERGER

BACKGROUND

On May 21, 1999, Power Trends invited four investment banks to make
presentations to its board of directors to help evaluate Power Trends' strategic
alternatives. On May 25, the Power Trends board of directors again met to
discuss the presentations made, and, on June 1, the board of directors selected
SG Cowen Securities Corporation ("SG Cowen") as Power Trends' investment banker
to pursue a strategic sale of the company.

On June 9, 1999, the Power Trends board of directors appointed a special
committee of three directors to supervise the sales process. Over the next few
days, SG Cowen worked with the special committee and management of Power Trends
to develop a list of potential purchasers to be contacted.

On June 24, 1999, SG Cowen initiated contact with Texas Instruments about a
possible Texas Instruments acquisition of Power Trends and sent Texas
Instruments a written summary description of the business of Power Trends. Also
on June 24, SG Cowen initiated the process of sending a summary description of
Power Trends to approximately 30 other potential buyers. This process continued
over the next few weeks until all targeted parties had been contacted. After
confidentiality agreements were signed, SG Cowen sent an information memorandum
to each of those parties. This process continued through mid-August.

On July 12, 1999, SG Cowen contacted Texas Instruments again to ask Texas
Instruments to consider a possible acquisition of Power Trends.

On July 22, another representative of Power Trends orally provided
background information to Texas Instruments about the business of Power Trends,
and Texas Instruments expressed an interest in considering a possible
acquisition of Power Trends.

On July 26, 1999, Texas Instruments and Power Trends executed a
confidentiality agreement.

On July 27, 1999, SG Cowen provided Texas Instruments with a confidential
information memorandum describing Power Trends' business and financial
performance.

On August 6, 1999, SG Cowen sent a letter to Texas Instruments and other
potential buyers outlining the requested procedures for such parties to indicate
their interest in Power Trends, if any.

On August 13, 1999, representatives of Texas Instruments and Power Trends
met to discuss various aspects of Power Trends' business operations, including
its strategy, product line, intellectual property and recent financial
performance, and Texas Instruments' representatives toured the Warrenville,
Illinois facility of Power Trends.
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During the week of August 16, Texas Instruments organized an internal team
to evaluate further the possibility of an acquisition of Power Trends, and
engaged Weil, Gotshal & Manges LLP as legal advisors. During the week of August
23, the team continued its evaluation.

On August 27, 1999, based on initial indications of interest received from
12 potential buyers, the board of directors of Power Trends decided that
discussions with three of those potential buyers should continue.

On August 30, 1999, Texas Instruments delivered to SG Cowen a non-binding
expression of Texas Instruments' interest in a possible acquisition of Power
Trends. On the basis of that expression of interest, Power Trends decided to
include Texas Instruments among the potential buyers with which it would
continue discussions.

On September 3, 1999, SG Cowen advised Texas Instruments and the three
other potential buyers with which it was continuing discussions that they would
be given access to a data room containing financial, operational and strategic
information of Power Trends and an opportunity to meet with company management.

On September 16, 1999, the Texas Instruments board of directors authorized
a proposed acquisition of Power Trends through a merger transaction in which all
of the outstanding capital stock of Power Trends would be exchanged for common
stock of Texas Instruments.

On September 16 and 17, 1999, members of the Texas Instruments team
conducted due diligence at the offices of Johnson and Colmar, legal advisors to
Power Trends, toured the manufacturing facilities of Power Trends and met with
Power Trends representatives to discuss various aspects of Power Trends'
operations, strategy and financial performance. On September 20, 1999, an
additional member of the Texas Instruments team toured Power Trends'
manufacturing facilities and discussed manufacturing issues with Power Trends
representatives.

On September 22, 1999, Texas Instruments delivered to SG Cowen a
non-binding expression of Texas Instruments' interest in an acquisition of Power
Trends through a merger transaction in which all of the stock of Power Trends
would be exchanged for Texas Instruments common stock. On September 22, 1999, SG
Cowen also received expressions of interest from two other potential buyers. Two
expressions of interest were identical in amount, causing the board of directors
of Power Trends to request revised expressions of interest from two potential
buyers, one of which was Texas Instruments.

After discussions among Texas Instruments and Power Trends representatives
of the ratio at which Power Trends stock would be exchanged for Texas
Instruments common stock in a possible transaction, Texas Instruments delivered
to Power Trends on September 24, 1999, a non-binding expression of its interest
in a merger transaction that would result in the exchange of all of Power Trends
stock for Texas Instruments common stock having an aggregate value of $145
million.

This expression of interest was reviewed by the board of directors of Power
Trends at a meeting by teleconference the same day in which all of the directors
participated. The board of directors authorized the special committee to
negotiate and approve the final terms of a definitive merger agreement with
Texas Instruments.

On September 24, 1999, Texas Instruments and Power Trends also negotiated
and entered into an exclusivity agreement.

From September 25, 1999, until the early morning of September 29, 1999,
representatives of Texas Instruments and Power Trends negotiated definitive
agreements. Based on its determination that the merger agreement with Texas
Instruments would provide the greatest value among the available alternatives to
Power Trends' stockholders, the Power Trends special committee, on September 28,
1999, approved the proposed merger agreement. On September 29, 1999, Texas
Instruments and Power Trends delivered the final, executed merger agreement and
related agreements, including employment agreements with six officers of Power
Trends.

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On October 4, 1999, Texas Instruments and Power Trends issued a joint press
release announcing the execution of the merger agreement and the terms of the
merger.

REASONS FOR THE MERGER

Texas Instruments' Reasons for the Merger

Texas Instruments believes the combination of Power Trends' position as a
leading provider of modular power products with Texas Instruments' position as
the world's leading provider of analog products will strengthen its portfolio of
catalog analog products for power management. Power Trends' products are plug-in
modules that regulate power on the customer's circuit board close to the
electronic component being powered. These products complement Texas Instruments'
catalog products with no overlap.

Texas Instruments expects the demand for plug-in modules to grow as
high-performance integrated circuits such as digital signal processors present
increasingly complex issues for power management. Plug-in modules offer the
customer a cost-effective solution to these issues, enabling the use of scarce
design resources for other tasks and helping the customer bring its product to
market more quickly.

Texas Instruments believes that Power Trends' systems and applications
knowledge and its design expertise, combined with Texas Instruments' strength in
analog products, will enable Texas Instruments to offer customers more complete
solutions to their power-management needs. With its worldwide sales
capabilities, Texas Instruments also believes it will be able to offer these
products to a broader customer base than Power Trends has previously been able
to serve.

Power Trends' Reasons for the Merger

In making its determination that the merger on substantially the terms and
conditions set forth in the merger agreement is advisable and to recommend
approval and adoption of the merger by the Power Trends stockholders, the Power
Trends board of directors consulted with its management team and advisors and
independently considered the proposed merger agreement and the transactions
contemplated by the merger agreement. The Power Trends board of directors
considered the following factors as reasons that the merger will be beneficial
to Power Trends and its stockholders:

- the complementary nature of the companies' product offerings and possible
synergies from combining Power Trends and Texas Instruments, particularly
synergies relating to accessing underserved sales and distribution
channels (primarily international), integrating Texas Instruments'
components into Power Trends products, improving manufacturing efficiency
by utilizing Texas Instruments' facilities, and eliminating duplicative
back-office operations;

- the terms and conditions of the merger agreement, including the
provisions relating to termination rights, closing conditions and the
calculation of the exchange ratio;

- the expected qualification of the merger as a reorganization under
Section 368(a) of the Internal Revenue Code; and

- the advice and analysis of Power Trends' financial advisor, SG Cowen,
throughout the merger discussions and negotiations.

In the course of deliberations, the Power Trends board of directors also
considered a number of additional factors relevant to the merger, including:

- information relating to the business, assets, management, competitive
position, operating performance and prospects of each of Power Trends and
Texas Instruments, including the prospects of Power Trends if it were to
continue as an independent company;

- current industry, market and economic conditions;

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- the possibility of strategic alternatives to the merger for enhancing
long-term stockholder value, including the possibility of other potential
strategic transactions, the possibility of pursuing an initial public
offering of its common stock or remaining as an independent company;

- the impact of the merger on Power Trends' customers, suppliers and
employees; and

- the likelihood that the merger would be completed.

The Power Trends board of directors also identified and considered a number
of potentially negative factors in its deliberations concerning the merger,
including:

- the risk that the operations of Power Trends and Texas Instruments might
not be successfully integrated;

- a recognition that Texas Instruments common stock has traded at high
multiples, and the risk that these multiples might not be sustained in
the future;

- the risk that, despite the efforts of Power Trends and Texas Instruments
after the merger, key employees might leave Power Trends; and

- the risk that the potential benefits of the merger might not be fully
realized.

The Power Trends board of directors believed that some of these risks were
unlikely to occur, that Power Trends and Texas Instruments could avoid or
mitigate others, and that, overall, these risks were outweighed by the potential
benefits of the merger.

In view of the variety of factors considered in connection with its
evaluation of the merger agreement and the merger, the Power Trends board of
directors considered the factors as a whole and did not find it practicable to,
and did not quantify or otherwise assign relative weight to, the specific
factors considered in reaching its determination. In addition, individual
members of the Power Trends board of directors may have given different weight
to different factors.

RECOMMENDATION OF THE BOARD OF DIRECTORS OF POWER TRENDS

After careful consideration, the Power Trends board of directors has
unanimously determined that the terms of the merger agreement and the merger on
substantially the terms and conditions set forth in the merger agreement are
advisable and are fair to, and in the best interests of, Power Trends and its
stockholders. The Power Trends board of directors has approved the merger
agreement and the plan of merger on substantially the terms and conditions set
forth in the merger agreement and unanimously recommends that the stockholders
of Power Trends vote "for" the approval of the merger.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the Power Trends board of directors to
approve and adopt the merger, stockholders of Power Trends should be aware that
some members of the management of Power Trends have interests in the merger that
are different from, or in addition to, the interests of stockholders of Power
Trends generally.

All of the officers of Power Trends are beneficial owners of stock options
to purchase Power Trends common stock. The unvested portion of these stock
options will become fully vested and immediately exercisable and will be assumed
by Texas Instruments and will be deemed to constitute options to acquire shares
of Texas Instruments common stock with appropriate adjustments in share amounts
and exercise price to reflect the exchange ratio in the merger. See the
discussion under the section entitled "The Merger Agreement -- Treatment of
Stock Options." In addition, certain officers of Power Trends, consisting of G.
Russell Ashdown, Robert H. Ackmann, Brian C. Narveson, Thomas A. Rotunno, George
Ann Zimmerer, and Stephen A. Anderson have entered into employment agreements
with Texas Instruments which will become effective upon completion of the
merger, all of which provide for salary

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and benefits and some of which additionally provide for awards for Texas
Instruments restricted stock units and options to purchase Texas Instruments
common stock.

EMPLOYEE BENEFIT PLANS

Pursuant to the merger agreement, Texas Instruments will honor the
obligations of Power Trends and its subsidiaries under Power Trends' employee
benefit plans. The employees of Power Trends, including the executive officers,
will be eligible to participate in Texas Instruments' applicable employee
benefit plans as soon as administratively convenient following the merger. At
Texas Instruments' discretion, service with Power Trends and its affiliates may
be treated as service with Texas Instruments for some purposes to the same
extent such service was counted under the corresponding Power Trends benefit
plan, if any.

DISSENTERS' RIGHTS

Under Illinois law, you are entitled to exercise dissenter's rights and
obtain payment for your shares as a result of Texas Instruments' acquisition of
Power Trends, provided that you comply with the provisions of Sections 11.65 and
11.70 of the Illinois Business Corporation Act (the "IBCA") (a copy is attached
as Annex C and incorporated in this prospectus/proxy statement by reference). If
you comply with the provisions of Section 11.70 of the IBCA, then upon
consummation of the merger, you are entitled to receive payment from Texas
Instruments for the fair value of your shares plus accrued interest. If Texas
Instruments and you can not agree on the fair value of your shares or the
accrued interest, then the IBCA provides for a judicial determination of these
amounts. The value as determined by an Illinois court may be more or less than
the value you are entitled to under the merger agreement. If you desire to
exercise dissenter's rights, you should refer to the statute in its entirety and
should consult with legal counsel prior to taking any action to ensure that you
comply strictly with the applicable statutory provisions.

In summary, to exercise dissenter's rights, you must do all of the
following:

- deliver to Power Trends a written demand for payment of your shares
before the vote on the merger is taken;

- not vote in favor of the merger (note that a vote, in person or by proxy,
against approval and adoption of the merger agreement will not constitute
a written demand for appraisal); and

- continue to hold your shares of Power Trends common stock or preferred
stock through the effective time of the merger.

Your failure to vote against the proposal to adopt the merger agreement
will not constitute a waiver of your dissenter's rights under the IBCA.
Conversely, a vote against approval and adoption of the merger agreement will
not by itself be sufficient to satisfy your obligations if you are seeking an
appraisal. You must follow the procedures set forth in Section 11.70 of the
IBCA.

Each outstanding share of Power Trends common stock and preferred stock as
to which a legally sufficient demand in accordance with Section 11.70 of the
IBCA has been made and that was not voted in favor of approval of the merger
will, after the effective time of the merger, represent only the rights of a
dissenting stockholder under the IBCA. This includes the right to obtain payment
for the estimated fair value of those shares, plus accrued interest, as provided
under the IBCA.

Within ten days after the effective date of the merger or 30 days after you
have delivered your written demand for payment, whichever is later, Texas
Instruments will send to you a statement setting forth its opinion as to the
fair value of your shares, as well as certain financial statements and a
commitment to pay to you such estimated fair value for your shares. If you do
not agree with the opinion of Texas Instruments as to the estimated fair value
of the shares or the amount of interest due, then within 30 days of your receipt
of Texas Instruments' valuation statement, you must notify Texas Instruments as
to what you estimate the fair value of your shares to be and demand the
difference between your estimated fair value and interest due and the amount of
the payment by Texas Instruments.

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If, within 60 days from delivery of Texas Instruments' notice to the
dissenting stockholders, you and Texas Instruments have not agreed in writing as
to the fair value of the shares of interest due, Texas Instruments will either
pay the difference in value demanded by you, with interest, or file a petition
in the circuit court requesting the court to determine the fair value of the
shares and interest due. Texas Instruments will be required to then make all
dissenters a party to such proceeding. If Texas Instruments does not commence
the action, you may commence an action as permitted by law.

In a proceeding brought by Texas Instruments to determine value, the court
will determine the costs of the proceeding, including the reasonable
compensation of expenses of the appraisers appointed by the court and excluding
fees and expenses of counsel and experts for the respective parties. If the fair
value of the shares as determined by the court materially exceeds the price that
Texas Instruments estimated to be the fair value of the shares or if no estimate
was given, then all or any part of the costs may be assessed against Texas
Instruments. If the amount that any dissenter estimated to be the fair value of
the shares materially exceeds the fair value of the shares as determined by the
court, then all or any part of the costs may be assessed against that dissenter.
The costs may be awarded to the dissenter if the court finds that Texas
Instruments did not substantially comply with the procedure to dissent in the
statute. In addition, costs can be assessed against either party if the court
finds that that party acted arbitrarily, vexatiously, or not in good faith with
respect to the dissenter's rights.

A share for which you have properly exercised your dissenter's rights and
followed the right to dissent procedures in the IBCA will not be converted into,
or represent, a right to receive Texas Instruments common stock as provided
under the merger agreement. Any of these shares will not, after the effective
time of the merger, be entitled to vote for any purpose or receive any dividends
or other distributions. If, however, you, as the holder of such shares, fail to
properly perfect, effectively withdraw, waive or lose, or otherwise become
ineligible to exercise dissenting stockholder's rights under the IBCA, then at
that time these shares held by you will be converted into Texas Instruments
common stock as provided in the merger agreement.

ACCOUNTING TREATMENT

The merger is intended to qualify as a "pooling of interests" for financial
reporting purposes under generally accepted accounting principles. Under this
method of accounting, the recorded assets and liabilities of Texas Instruments
and Power Trends will be carried forward to the combined company at their
recorded amounts. The operating results of the combined company will include
operating results of Texas Instruments and Power Trends for the periods
subsequent to the combination and, to the extent material, the combined recorded
operating results of the separate companies for periods prior to the combination
on a restated basis.

FEDERAL SECURITIES LAWS CONSEQUENCES

All shares of Texas Instruments common stock received by Power Trends
stockholders in the merger will be freely transferable, except that shares of
Texas Instruments common stock received by persons who are deemed to be
"affiliates," as such term is defined under the Securities Act, of Power Trends
prior to the merger may be resold by them only in transactions permitted by the
resale provisions of Rule 145 promulgated under the Securities Act or as
otherwise permitted under the Securities Act. Persons who are affiliates of
Power Trends generally include individuals or entities that control, are
controlled by, or are under common control with, Power Trends and may include
certain officers and directors of Power Trends as well as principal stockholders
of Power Trends. Pursuant to the terms of the merger agreement, Power Trends is
required to obtain from all current "affiliates" of Power Trends a letter
agreement to the effect that such affiliates will not offer or sell or otherwise
dispose of any of the shares of Texas Instruments common stock issued to him or
her in or in connection with the merger in violation of the Securities Act or
the rules and regulations promulgated by the Securities and Exchange Commission
under such Act.

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COMPARISON OF RIGHTS OF STOCKHOLDERS OF TEXAS INSTRUMENTS AND POWER TRENDS

Upon the completion of the merger, the holders of Power Trends common stock
and preferred stock will become holders of Texas Instruments common stock. As
holders of Texas Instruments common stock after the merger, current holders of
Power Trends preferred stock will no longer have the special rights and
preferences afforded them under Power Trends' articles of incorporation and
under Illinois law. The rights of Texas Instruments stockholders are governed by
Texas Instruments' restated certificate of incorporation, its bylaws and
Delaware law, including the Delaware General Corporation Law (the "DGCL"). The
rights of Power Trends stockholders are governed by its charter, its bylaws and
Illinois law, including the Illinois Business Corporation Act (the "IBCA").

The following is a summary of the material differences between the rights
of the holders of Power Trends common stock and preferred stock and the rights
of holders of Texas Instruments common stock.

The following summary does not purport to be a complete statement of the
rights of Texas Instruments stockholders under Delaware law, Texas Instruments'
restated certificate of incorporation and Texas Instruments' bylaws as compared
with the rights of the Power Trends stockholders under Illinois law, Power
Trends' articles of incorporation and Power Trends' bylaws, and does not purport
to be a complete description of the specific provisions referred to below. The
identification of specific differences is not meant to indicate that other
equally or more significant differences do not exist. This summary is qualified
in its entirety by reference to the governing corporate instruments of Texas
Instruments incorporated by reference to the registration statement of which
this proxy statement/prospectus is a part, to which stockholders are referred.
The material terms of Texas Instruments common stock are described under the
heading "Description of Capital Stock of Texas Instruments" on page 83.

Number of Directors

Power Trends. Under the IBCA, the board of directors of a corporation must
consist of at least one member. The Power Trends articles of incorporation
provide that the board of directors shall consist of a minimum of five and a
maximum of seven directors, as fixed by the board of directors. Moreover, the
Power Trends articles of incorporation provide that in the event that Power
Trends fails to honor certain obligations to the holders of the Power Trends
preferred stock or takes actions inconsistent with its articles of
incorporation, then the board of directors will, at the request of the holders
of the majority of the shares of the Power Trends preferred stock then
outstanding, be increased by the minimum number as will constitute a majority of
the board of directors, and the holders of the Power Trends preferred stock will
have the right to elect individuals to fill these newly created directorships.

Texas Instruments. The DGCL permits the certificate of incorporation or
bylaws to contain a provision regarding the number of directors. Under the Texas
Instruments bylaws, the maximum number of directors of Texas Instruments is 15
until changed by resolution of the board of directors. There are currently 10
directors serving on the Texas Instruments board of directors. The DGCL permits
a Delaware corporation's board of directors to be divided into up to three
classes with staggered terms of office by adopting a classification provision in
the corporation's certificate of incorporation or bylaws. Texas Instruments does
not have a classified board and neither its certificate of incorporation nor its
bylaws provides for classification.

Removal of Directors

Power Trends. Subject to certain exceptions relating to notice
requirements, cumulative voting and voting based on class or series, the IBCA
provides that one or more of the directors of a corporation may be removed, with
or without cause, at a meeting of stockholders by the affirmative vote of the
holders of a majority of the outstanding shares then entitled to vote at an
election of directors.

The Power Trends articles of incorporation provide that a director elected
by the stockholders may be removed, with or without cause, by the vote of
holders of at least 60% of the voting rights of the outstanding shares of Power
Trends common stock and preferred stock (with each share of common stock

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having one vote per share and each share of preferred stock having 100 votes per
share). A director elected by the board of directors may be removed, with or
without cause, at any regular or special meeting of the board of directors.

Texas Instruments. Under the DGCL, the affirmative vote of a majority of
the shares entitled to vote for the election of directors is required to remove
directors, with or without cause, subject to certain exceptions relating to
directors elected by the holders of a class or series, and corporations that
have a classified board of directors.

Filling Vacancies on the Board of Directors

Power Trends. The IBCA provides that except as otherwise provided in the
articles of incorporation, any vacancy occurring in the board of directors and
any directorship to be filled by reason of an increase in the number of
directors may be filled by election at an annual meeting or at a special meeting
of stockholders called for that purpose; provided, however, that the by-laws of
a corporation may provide a method for filling vacancies arising between
meetings of stockholders by reason of an increase in the number of directors or
otherwise, by director or stockholder action and, in the absence of such
provision, the board of directors may fill the vacancy.

The Power Trends articles of incorporation provide that if a vacancy arises
by reason of a director's resignation, death or removal by the board of
directors, or if a vacancy arises by reason of an increase in the number of
directors, the board of directors shall fill the vacancy. If an incumbent
director is removed by the stockholders, the stockholders shall fill the
vacancy.

Under the Power Trends articles of incorporation, a director elected to
fill a vacancy shall hold office until the next meeting of the stockholders or,
if directors are not elected at this meeting, until the election of his or her
successor.

Texas Instruments. The DGCL provides that, unless otherwise provided in a
corporation's certificate of incorporation or bylaws, vacancies and newly
created directorships may be filled by a majority of the directors then in
office or a sole remaining director, even though less than a quorum, unless
otherwise provided in the certificate of incorporation or bylaws. However, the
DGCL also provides that if the directors then in office constitute less than a
majority of the corporation's whole board of directors, as constituted prior to
any such increase, then, upon application by stockholders representing at least
10% of outstanding shares entitled to vote for such directors, the Delaware
Court of Chancery may order a stockholder election of directors to be held. The
Texas Instruments bylaws provide substantially the same provisions with respect
to the filling of vacancies on the Texas Instruments board of directors as the
provisions of the DGCL, and provide further that any vacancy not filled by the
directors may be filled by the stockholders at any special meeting of the
stockholders called for that purpose.

Interested Director Transactions

Power Trends. Under the IBCA, if a transaction is fair to a corporation at
the time it was authorized, approved or ratified by the directors or
stockholders, respectively, then the fact that a director of the corporation is
directly or indirectly a party to the transaction is not grounds for
invalidating the transaction or the director's vote regarding the transaction.
Nevertheless, in a proceeding contesting the validity of such an "interested
transaction," the person asserting the validity of such a transaction has the
burden of proving the fairness of such transaction unless the material facts of
the transaction and the director's interest or relationship were disclosed to
the board of directors and such transaction was authorized, approved or ratified
by "disinterested" directors, or the material facts of the transaction and the
director's interest or relationship were disclosed to the stockholders and such
transaction was authorized, approved or ratified by the "disinterested"
stockholders. The Power Trends by-laws set forth similar provisions with respect
to "interested" director transactions.

Texas Instruments. Under the DGCL, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable solely because of such interest if such

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contract or transaction (1) is ratified by the stockholders (as set forth below)
or a majority of disinterested members of the board of directors or a committee
thereof if the material facts of the contract or transaction are disclosed or
known or (2) was fair to the corporation at the time it was approved. Under the
DGCL, any ratification of such a contract or transaction by the stockholders
must be made by a majority of all stockholders in good faith.

Amendment to Charter/Certificate of Incorporation

Power Trends. In general, the IBCA provides that in order for the articles
of incorporation to be amended, the board of directors must adopt a resolution
to submit the proposed amendment to the stockholders for a vote and then at
least two-thirds of the shares entitled to vote on such amendment vote in favor
of the amendment. The articles of incorporation may supersede the two-thirds
vote requirement and specify any smaller or larger vote requirement not less
than a majority of the votes of the shares entitled to vote on the amendment and
not less than a majority of the votes of the shares of each class or series of
shares entitled to vote as a class on the amendment. Power Trends articles of
incorporation specifically provides that no amendment, modification or waiver
will be binding or effective with respect to the articles without the prior
written consent of the holders of at least 66 2/3% of the preferred stock
outstanding at the time such action is taken. No change in the terms of Power
Trends articles of incorporation may be accomplished by merger or consolidation
of Power Trends with another corporation unless Power Trends has obtained prior
written consent of the holders of at least 66 2/3% of the preferred stock then
outstanding.

Texas Instruments. The DGCL provides that the certificate of incorporation
of a corporation may be amended upon adoption by the board of directors of a
resolution setting forth the proposed amendment and declaring its advisability,
followed by the affirmative vote of a majority of the outstanding shares
entitled to vote. It also provides that a certificate of incorporation may
provide for a greater or lesser vote than would otherwise be required by the
DGCL. The certificate of incorporation of Texas Instruments does not contain a
provision requiring a vote greater or lesser than that specified in the DGCL to
amend the certificate of incorporation.

Amendment of Bylaws

Power Trends. The IBCA provides that unless the power to make, alter, amend
or repeal the by-laws is reserved to the stockholders by the articles of
incorporation, the by-laws of the corporation may be made, altered, or repealed
by the stockholders or the board of directors; provided however, that no by-laws
adopted by the stockholders may be altered, amended or repealed by the board of
directors if the by-laws so provide.

Power Trends by-laws provide that the power to make, alter, amend, or
repeal the by-laws shall be vested in the board of directors, unless reserved to
the stockholders by the articles of incorporation. Power Trends articles of
incorporation provide that the by-laws may not be amended without the approval
of the holders of a majority of the shares of Power Trends preferred stock.

Texas Instruments. Under the DGCL, a corporation's bylaws may be amended by
the action of the stockholders and, if so provided in the certificate of
incorporation, the directors. The Texas Instruments certificate of incorporation
and bylaws provide that the Texas Instruments bylaws may be adopted, altered, or
repealed by the affirmative vote of a majority of the board of directors or the
stockholders at any regular or special meeting of directors or stockholders, as
applicable. Any addition, alteration, amendment or repeal of a bylaw effected by
the board of directors may be altered, amended or repealed by the stockholders.

Stockholder Meetings and Provisions for Notices

Power Trends. Power Trends by-laws provide that the board of directors may
designate any place as a place of meeting for any annual meeting or for any
special meeting called by the board of directors. If no designation is made, or
if a special meeting is otherwise called, the place of the meeting shall be at
the
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then-registered office of Power Trends in the State of Illinois. Power Trends
by-laws provide that the annual meeting of the stockholders shall be held
between July 1 and October 31 each year, on the date fixed by the board of
directors.

Special meetings of the stockholders may be called by the president, by the
board of directors, by the chairman of the board of directors, or by the holders
of not less than one-fifth of all the outstanding shares of Power Trends, for
the purpose or purposes stated in the notice of meeting.

The IBCA provides that written notice stating the place, day, and hour of
the stockholder's meeting and, in the case of a special stockholder's meeting,
the purpose or purposes for which the meeting is called, shall be delivered not
less than 10 nor more than 60 days before the date of the meeting, or in the
case of a merger, consolidation, share exchange, dissolution or sale, lease or
exchange of assets not less than 20 nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the president,
or the secretary, or the officer or persons calling the meeting, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the stockholder at his or her address as it appears on the records
of the corporation, with postage thereon prepaid.

Whenever any notice is required to be given under the provisions of the
IBCA or under the provisions of the articles of incorporation or by-laws of any
corporation, the IBCA provides that a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
Attendance at any meeting shall constitute waiver of notice thereof unless the
person at the meeting objects to the holding of the meeting because proper
notice was not given.

Texas Instruments. Under the DGCL, stockholder meetings may be held at any
place, as provided in the bylaws. Under the DGCL, written notice of a
stockholders meeting must state the place, date and time of the meeting, and for
a special meeting and certain other meetings, the purpose or purposes for which
the meeting is to be held. The Texas Instruments bylaws provide that written
notice of every meeting of the stockholders, stating the place, date and hour of
the meeting and, if a special meeting, the purpose or purposes for which the
meeting is called, will be given not less than 10 nor more than 60 calendar days
before the date of the meeting to each stockholder of record entitled to vote at
that meeting. Special meetings of the stockholders may be called by the chairman
of the board of directors, president or the board of directors of Texas
Instruments.

Advance Notice Provisions for Stockholder Proposals and Nominations

Power Trends. Power Trends by-laws do not set forth provisions with respect
to a stockholder nominating a candidate for election as a director or proposing
business for consideration at an annual meeting of Power Trends stockholders.

Texas Instruments. Under the Texas Instruments bylaws, for stockholders to
nominate persons for election to the board of directors at the annual meeting of
stockholders or to properly introduce business to be transacted at the annual
meeting, a stockholder must deliver timely notice in a proper written form to
Texas Instruments' principal executive offices. To be timely, the notice must be
delivered or mailed and received by Texas Instruments not less than 70 days
prior to the first anniversary of the preceding year's annual meeting.

Voting by Stockholders; Proxies

Power Trends. Under the IBCA, unless the articles of incorporation provide
differently, each share of a corporation shall be entitled to one vote in each
matter submitted to vote at a meeting of stockholders. The Power Trends articles
of incorporation provide that, except for certain exceptions, holders of the
Power Trends common stock and preferred stock will be entitled to vote on all
matters submitted to a vote, with each share of common stock having one vote and
each share of preferred stock having a number

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of votes equivalent to the number of shares of common stock issuable upon
conversion of such share of preferred stock, which is currently 100 shares.

The IBCA provides that a stockholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it to
the person so appointed. No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in the proxy.

Texas Instruments. The Texas Instruments bylaws provide that except as
otherwise expressly provided by law or by the certificate of incorporation or
the bylaws, each stockholder of Texas Instruments is entitled to one vote in
person or by proxy for each share of the stock of Texas Instruments having
voting powers held by him and registered in his name on the books of Texas
Instruments on the date fixed by the board of directors for the determination of
stockholders entitled to vote at the meeting. Under the DGCL, stockholder
proxies are valid for three years from their date unless the proxy provides for
a longer period.

Stockholder Action Without a Meeting

Power Trends. Under the IBCA and the Power Trends by-laws, any action which
may be taken at a meeting of the stockholders may be taken without a meeting and
without a vote, if a consent in writing, setting forth the action so taken, is
signed (i) by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voting or
(ii) by all of the stockholders entitled to vote with respect to the subject
matter thereof. However, if such consent is signed by less than all of the
stockholders entitled to vote, then such consent shall become effective only if
at least 5 days prior to the execution of the consent a notice in writing is
delivered to all the stockholders entitled to vote with respect to the subject
matter thereof and, after the effective date of the consent, prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be delivered in writing to those stockholders who have not
consented in writing.

Texas Instruments. Under the DGCL, unless otherwise provided in the
certificate of incorporation, actions may be taken by the stockholders of a
Delaware corporation by written consent, provided that the written consent is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote on the matter were present and
voted. The Texas Instruments certificate of incorporation prohibits the
stockholders from acting by written consent.

Mergers, Consolidations and Sales of Assets

Power Trends. In general, under the IBCA, a plan of merger, consolidation
or share exchange must be approved by the affirmative votes of at least
two-thirds of the votes of the shares entitled to vote on the plan unless any
class or series of shares of any such corporation is entitled to vote as a class
on the plan, in which event the plan must be approved by the affirmative votes
of at least two-thirds of the votes of the shares of each such class or series
of shares entitled to vote as a class on the plan and of the votes of the total
shares entitled to vote on the plan. Any class of shares shall be entitled to
vote as a class if the articles of incorporation so provide or if the plan of
merger, consolidation or exchange, as the case may be, contains any provision
which, if contained in a proposed amendment to the articles of incorporation,
would entitle such class of shares to vote as a class.

The articles of incorporation of any corporation may supersede the
two-thirds vote requirement by specifying any smaller or larger vote requirement
not less than a majority of the votes of the shares entitled to vote on the
issue and not less than a majority of the votes of the shares of each class or
series of shares entitled to vote as a class on the issue.

The IBCA has analogous provisions for a sale, lease, exchange, or other
disposition of all, or substantially all, of the property and assets of a
corporation if not made in the usual and regular course of its business.

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The Power Trends articles of incorporation provide that any merger or
consolidation or sale, lease, or other disposition of more than 20% of Power
Trends consolidated assets requires an affirmative vote of the holders of a
majority of the shares of preferred stock. Moreover, the articles of
incorporation provide that no change to the articles may be accomplished by
merger or consolidation of Power Trends with another corporation unless Power
Trends has obtained the prior written consent of the holders of at least 66 2/3%
of the preferred stock then outstanding.

Texas Instruments. The DGCL generally requires approval of any merger,
consolidation or sale of substantially all the assets of a corporation, other
than parent-subsidiary mergers, by vote of the holders of a majority of all
outstanding shares entitled to vote on the matter, unless the certificate of
incorporation specifies a different percentage. The certificate of incorporation
of Texas Instruments does not contain such a provision.

Business Combinations

Power Trends. Generally, the IBCA prohibits a "business combination"
(generally including mergers, sales and leases of assets, issuances of
securities and similar transactions) by a corporation or a subsidiary with an
"interested Stockholder" (generally, the beneficial owner of 15% of more of a
corporation voting stock) within three years after the person or entity becoming
an interested stockholder. However, this provision is not applicable to Power
Trends because Power Trends does not have a class of securities listed on a
national securities exchange or approved for quotation on NASDAQ or held of
record by more than 2,000 holders.

Texas Instruments. Texas Instruments is subject to the provisions of
Section 203 of the DGCL. In general, Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the time such person became an
interested stockholder unless:

- prior to such time, the board of directors approved either the business
combination or the transaction in which the stockholder became an
interested stockholder; or

- upon becoming an interested stockholder, the stockholder owned at least
85% of the corporation's outstanding voting stock other than shares held
by directors who are also officers and shares held by certain employee
benefit plans; or

- the business combination is approved by both the board of directors and
by holders of at least 66 2/3% of the corporation's outstanding voting
stock at a meeting and not by written consent, excluding shares owned by
the interested stockholder.

For these purposes, the term "business combination" includes mergers, asset
sales and other similar transactions with an "interested stockholder," and the
term "interested stockholder" means a person who, together with its affiliates
and associates, owns or, under certain circumstances, has owned within the prior
three years more than 15% of the outstanding voting stock of the corporation.
Affiliates and associates of an "interested stockholder" are also considered
"interested stockholders" for purposes of Section 203. Although Section 203
permits a corporation to elect not to be governed by its provisions in its
certificate of incorporation, Texas Instruments has not made this election.

Stockholder Rights Plan

Power Trends. Power Trends has not adopted a stockholder rights plan.

Texas Instruments. Texas Instruments has adopted a rights plan that is
described under the heading "Description of Capital Stock of Texas
Instruments -- The Rights Plan" on page 83. As described in that section, the
rights plan may have antitakeover effects.

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Dissenter's Rights/Appraisal Rights

Power Trends. Under the IBCA, a stockholder is entitled to exercise
dissenter's rights and obtain payment for his shares as a result of the merger,
consolidation, share exchange or sale of all or substantially all of a
corporation's assets, provided that a stockholder complies with the provisions
of Section 11.65 and 11.70 of the IBCA set forth in Annex C hereto. If the
stockholder complies with the provisions of Section 11.65 and Section 11.70 of
the IBCA, then upon consummation of a merger, the stockholder is entitled to
receive payment from the surviving corporation for the fair value of his shares
plus accrued interest. If the stockholder and the surviving company cannot agree
on the fair value of the stockholder's shares or the accrued interest, then the
IBCA provides for a judicial determination of these amounts. The value as
determined by an Illinois court may be more or less than the value the
stockholder would be entitled to under the merger agreement. To determine the
fair value of the shares, the Illinois court will look at the value of the share
immediately before the consummation of the merger, excluding any appreciation in
anticipation of the merger, unless such exclusion would be inequitable.

Texas Instruments. Pursuant to Section 262 of the DGCL, holders of Texas
Instruments common stock will not be entitled to appraisal rights with respect
to the merger because Texas Instruments is not one of the two merging
corporations.

Dividends

Power Trends. Under the IBCA, the board of directors of a corporation may
authorize, and the corporation may make, distributions to its stockholders,
subject to any restriction in the articles of incorporation and provided that no
distribution may be made if, after giving it effect, the corporation would be
insolvent, or the net assets of the corporation would be less than zero or less
than the maximum amount payable at the time of distribution to stockholders
having preferential rights in liquidation if the corporation were then to be
liquidated.

Power Trends articles of incorporation provide that the holders of the
Power Trends preferred stock and the holders of the common stock shall share pro
rata (based on the number of shares of common stock that a holder of preferred
stock would be entitled to receive upon conversion of the preferred stock into
common stock) in all dividends and distributions as are declared from time to
time by the board of directors. Power Trends articles of incorporation provide
for certain differences in distributions to holders of Power Trends common stock
and preferred stock upon a liquidation, dissolution or winding up of Power
Trends.

Texas Instruments. The DGCL permits a corporation to declare and pay
dividends out of surplus or, if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or for the preceding fiscal
year as long as the amount of capital of the corporation following the
declaration and payment of the dividend is not less than the aggregate amount of
the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. In addition, the DGCL
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation. However, a corporation may repurchase shares having a preference
upon the distribution of any of its assets or, if no shares entitled to a
preference are outstanding, any of its shares, if it retires such shares upon
acquisition and reduces the corporation's capital in connection therewith, and
provided that, after any reduction in capital made in connection with such
retirement of shares, the corporation's remaining assets are sufficient to pay
any debts not otherwise provided for.

Standard of Conduct for Directors

Power Trends. Under the IBCA, directors and officers may, in discharging
their duties, and in considering the best long term and short term interests of
the corporation, consider the effects of any action (including without
limitation, action which may involve or relate to a change or potential change
in control of the corporation) upon employees, suppliers and customers of the
corporation or its subsidiaries, communities in which offices or other
establishments of the corporation or its subsidiaries are located, and
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all other pertinent factors. Illinois courts have imposed fiduciary duties on
directors of corporations similar to those under Delaware law as described
below.

Texas Instruments. Under Delaware law, the standards of conduct for
directors have developed through written opinions of the Delaware courts.
Generally, directors of Delaware corporations are subject to a duty of loyalty
and a duty of care. The duty of loyalty has been said to require directors to
refrain from self-dealing and the duty of care requires directors in managing
the corporate affairs to use that amount of care which ordinarily careful and
prudent persons would use in similar circumstances. In general, gross negligence
has been established as the test for breach of the standard for the duty of care
in the process of decision-making by directors of Delaware corporations. When
directors act consistently with their duties of loyalty and care, their
decisions generally are presumed to be valid under the business judgment rule.

Limitation of Liability and Indemnification of Directors and Officers

Power Trends. Under the IBCA and Power Trends by-laws, Power Trends has the
power to indemnify directors and officers who are or are threatened to be made
parties to civil, criminal, administrative or investigative proceedings by
reason of the fact that such person was a director or officer of the corporation
against expenses, judgments, fines and amounts paid in settlement, if such
person acted in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the corporation and with respect to criminal
proceedings, had no reasonable cause to believe that the conduct was unlawful.
The termination of any action, suit or proceeding by judgment or settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of Power Trends, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

Furthermore, Power Trends has power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.

Under the IBCA and Power Trends by-laws, any such indemnification (unless
ordered by a court) shall be made by Power Trends only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct. Such determination shall be made (a) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceedings, or (b) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.

Under the IBCA and Power Trends by-laws, Power Trends has the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of Power Trends, or is or was serving at
the request of Power Trends as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability.

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Texas Instruments. The DGCL provides that a corporation's certificate of
incorporation may include a provision limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. However, no such provision can eliminate or
limit the liability of a director for:

- any breach of the director's duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- unlawful payments of dividends and unlawful stock purchases or
redemptions under Section 174 of the DGCL; or

- any transaction from which the director derived an improper personal
benefit.

As permitted by the DGCL, the certificate of incorporation of Texas Instruments
contains a provision limiting the personal liability of a director of Texas
Instruments to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. The liability of officers may not be
eliminated or limited under the DGCL.

The DGCL generally permits indemnification for expenses incurred in the
defense or settlement of third party actions by or in right of the corporation,
and for judgments in third party actions, provided there is a determination by
directors who were not parties to the action, or if directed by such directors,
by independent legal counsel or by a majority vote of a quorum of the
stockholders, that the person seeking indemnification acted in good faith and in
a manner reasonably believed to be in, or not opposed to, the best interests of
the corporation, or in a criminal proceeding that the person had no reason to
believe his or her conduct to be unlawful. Without court approval, however, no
indemnification may be made in respect of any action by or in right of the
corporation in which such person is adjudged liable. The DGCL states that the
indemnification provided by statute shall not be deemed exclusive of any rights
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise. The Texas Instruments bylaws authorize Texas Instruments to indemnify
any former or present director, officer or employee of Texas Instruments, to the
fullest extent permitted by Delaware law.

Authorized Capital

Power Trends. Power Trends authorized capital stock consists of 17,000,000
shares of common stock, no par value, and 137,800 shares of preferred stock, no
par value, consisting of 17,500 shares designated as Series A-1 Convertible
Preferred Stock, 10,000 shares designated as Series A-2 Convertible Preferred
Stock, 6,250 shares designated Series A-3 Convertible Preferred Stock, 77,050
shares designated as Series A-4 Convertible Preferred Stock and 27,000 shares
designated as Series B-1 Convertible Preferred Stock.

Power Trends has 5,555,487 shares of common stock issued and outstanding as
of the record date.

Power Trends has 100,740 shares of preferred stock issued and outstanding
as of the record date, consisting of 17,500 shares of Series A-1 Convertible
Preferred Stock, 10,000 shares of Series A-2 Convertible Preferred Stock, 6,250
shares of Series A-3 Convertible Preferred Stock, 45,245 shares of Series A-4
Convertible Preferred Stock, and 21,745 shares of Series B-1 Convertible
Preferred Stock.

There are outstanding options to purchase a total of 831,294 shares of
Power Trends common stock.

Texas Instruments. The authorized capital stock of Texas Instruments
consists of 1,200,000,000 shares of Texas Instruments common stock, of which
there were 792,411,479 shares outstanding as of September 30, 1999, and
10,000,000 shares of Texas Instruments preferred stock, none of which were
outstanding as of September 30, 1999.

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Inspection Rights

Power Trends. Under the IBCA, a stockholder of record shall have the right
to examine, in person or by agent, at any reasonable time or times, the
corporation's books and records of account, minutes, voting trust agreements
filed with the corporation and record of stockholders, and to make extracts
therefrom.

Texas Instruments. A stockholder of a Delaware corporation may inspect the
stockholder list and any stockholder making a written demand may inspect any
other corporate books and records for any purpose reasonably related to such
person's interest as a stockholder.

Denial of Voting Rights

Power Trends. The IBCA provides that holders of the outstanding shares of a
class of stock shall be entitled to vote as a class upon a proposed amendment to
the articles of incorporation, whether or not entitled to vote thereon by the
articles of incorporation, if the amendment would change the number of
authorized shares of the class or affect the powers, preferences or special
rights of the class.

Texas Instruments. The DGCL provides that holders of the outstanding shares
of a class of stock shall be entitled to vote as a class upon a proposed
amendment to the certificate of incorporation, whether or not entitled to vote
thereon by the certificate of incorporation, if the amendment would change the
par value of the class or adversely affect the powers, preferences or special
rights of the class.

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following general discussion summarizes the anticipated material U.S.
federal income tax consequences of the merger to holders of Power Trends common
stock and preferred stock who exchange such stock for Texas Instruments common
stock in the merger. This discussion addresses only those stockholders who hold
their Power Trends common stock or preferred stock as a capital asset, and does
not address all of the U.S. federal income tax consequences that may be relevant
to particular stockholders in light of their individual circumstances or to
stockholders who are subject to special rules, such as financial institutions,
tax-exempt organizations, insurance companies, dealers in securities or foreign
currencies, traders in securities who elect to apply a mark-to-market method of
accounting, foreign holders, persons who hold such shares as a hedge against
currency risk or as a part of a straddle, constructive sale or conversion
transaction, or holders who acquired their shares upon the exercise of employee
stock options or otherwise as compensation. The following discussion is not
binding on the Internal Revenue Service. It is based upon the Internal Revenue
Code, laws, regulations, rulings and decisions in effect as of the date of this
proxy statement/prospectus, all of which are subject to changes, possibly with
retroactive effect. Tax consequences under state, local and foreign laws are not
addressed.

HOLDERS OF POWER TRENDS COMMON STOCK AND PREFERRED STOCK ARE STRONGLY URGED
TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES.

It is a condition to the consummation of the merger that (i) Power Trends
receives an opinion from Johnson and Colmar, counsel to Power Trends, to the
effect that the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and (ii) Texas Instruments receives
an opinion from Weil, Gotshal & Manges LLP, counsel to Texas Instruments, to the
effect that the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. Such opinions will be based on
customary assumptions and representations made by Power Trends, Power
Acquisition and Texas Instruments.

Assuming the merger qualifies as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, holders of Power Trends common
stock and preferred stock who exchange their Power Trends common stock and
preferred stock solely for Texas Instruments common stock (including the Texas
Instruments common stock placed in the escrow fund) in the merger will not
recognize gain or loss for U.S. federal income tax purposes, except with respect
to cash, if any, they receive in lieu of a fractional share of Texas Instruments
common stock, and except to the extent, if any, of such Texas
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Instruments common stock received that is attributable to accrued and unpaid
dividends in respect of the Power Trends preferred stock. Each holder's
aggregate tax basis in the Texas Instruments common stock received in the merger
will be the same as his or her aggregate tax basis in the Power Trends common
stock or preferred stock surrendered in the merger, decreased by the amount of
any tax basis allocable to any fractional share for which cash is received. The
holding period of the Texas Instruments common stock received in the merger by a
holder of Power Trends common stock or preferred stock will include the holding
period of Power Trends common stock or preferred stock, as applicable, that he
or she surrendered in the merger.

A holder of Power Trends common stock or preferred stock who receives cash
instead of a fractional share of Texas Instruments common stock generally will
be treated as if the fractional share of Texas Instruments common stock had been
distributed to him or her as part of the merger and then redeemed by Texas
Instruments in exchange for the cash actually distributed in lieu of the
fractional share, with such redemption qualifying as an exchange under Section
302 of the Internal Revenue Code. Consequently, such holders generally will
recognize capital gain or loss with respect to cash payments they receive in
lieu of fractional shares. In the case of an individual stockholder, any such
capital gain will generally be subject to a maximum U.S. federal income tax rate
of 20% if the individual has held his or her Power Trends common stock or
preferred stock for more than 12 months at the effective time of the merger. The
deductibility of capital losses is subject to limitations for both individuals
and corporations.

Cash received by a holder of Power Trends common stock or preferred stock
in satisfaction of dissenters' rights will result in the recognition of gain or
loss for U.S. federal income tax purposes, measured by the difference between
the amount of cash received and the basis of the Power Trends shares
surrendered. The gain or loss will be capital gain or loss if the Power Trends
shares were held as capital assets and will be long-term capital gain or loss if
the Power Trends shares had been held for more than one year at the effective
time of the merger.

REGULATORY MATTERS

The Antitrust Division of the Department of Justice, the Federal Trade
Commission, foreign regulatory agencies and others may challenge the merger on
antitrust grounds either before or after the expiration of the applicable
waiting periods. Accordingly, at any time before or after the completion of the
merger, the Antitrust Division of the Department of Justice, the Federal Trade
Commission, appropriate foreign regulatory agencies or others could take action
under the applicable antitrust laws as they deem necessary or desirable in the
public interest, including without limitation seeking to enjoin the consummation
of the merger or permitting such consummation subject to certain regulatory
concessions or conditions. There can be no assurance that a challenge to the
merger will not be made or that, if a challenge is made, that such challenge
will not prevail.

The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules promulgated thereunder by the
Federal Trade Commission, which prevent certain transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and waiting periods end or expire.

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THE MERGER AGREEMENT

The following is a summary of the material provisions of the merger
agreement, dated as of September 29, 1999, by Power Trends, Texas Instruments
and Power Acquisition, a copy of which is attached as Annex A to this proxy
statement/prospectus and incorporated by reference. Power Trends stockholders
should read carefully the merger agreement. The following summary is qualified
in its entirety by reference to the text of the merger agreement.

GENERAL

The merger agreement provides that, following the approval and adoption of
the plan of merger by the stockholders of Power Trends and the satisfaction or
waiver of the other conditions to the merger:

- Power Acquisition will merge with and into Power Trends; and

- Power Acquisition will cease to exist and Power Trends will continue as
the surviving corporation and as a wholly owned subsidiary of Texas
Instruments following the merger.

As a result of the merger, and as of the effective time of the merger,
Power Trends will succeed to and assume all of the rights and obligations of
Power Acquisition, in accordance with the IBCA.

COMPLETION AND EFFECTIVENESS OF THE MERGER

The merger agreement provides that, subject to the requisite approval of
the stockholders of Power Trends and the satisfaction or waiver of other
conditions, the merger will be consummated by the filing of articles of merger
and any other appropriate documents, in accordance with the relevant provisions
of the IBCA, with the Secretary of State of Illinois.

CONVERSION OF SHARES OF POWER TRENDS COMMON STOCK AND PREFERRED STOCK

Upon the consummation of the merger:

- each share of Power Trends common stock issued and outstanding
immediately prior to the merger, other than shares held by Texas
Instruments or Power Acquisition, will be converted into and become
exchangeable for the right to receive the number of shares of Texas
Instruments common stock equal to the exchange ratio, together with any
associated right to acquire shares of Series B Participating Cumulative
Preferred Stock of Texas Instruments under Texas Instruments' stockholder
rights plan. Each share of Power Trends preferred stock issued and
outstanding immediately prior to the merger, other than preferred shares
held by Texas Instruments or Power Acquisition, will be converted into
and become exchangeable for the right to receive the number of shares of
Texas Instruments common stock equal to the exchange ratio multiplied by
100. However, in the event of changes in Texas Instruments common stock
prior to the merger, such as stock dividends or stock splits, the
exchange ratio and the price of Texas Instruments common stock used to
calculate the exchange ratio will be adjusted in accordance with the
merger agreement to the extent necessary to reflect the change. The
exchange ratio will be calculated as follows:

(1) The exchange ratio will be calculated by dividing $8.67 by the
average of the daily high and low sales prices of Texas Instruments
common stock for the 20 consecutive trading day period ending on the
second trading day prior to the merger, subject to the maximum and
minimum exchange ratios referenced below;

(2) The maximum exchange ratio is .1294 (in the case of a Texas
Instruments average trading price of $67.00 or less), providing that
this maximum exchange ratio may be waived by Texas Instruments in
certain cases, in which event the maximum exchange ratio will be
disregarded in the determination of the exchange ratio; and

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(3) The minimum exchange ratio is .0810 (in the case of a Texas
Instruments average trading price of $107.00 or more), provided that
this minimum exchange ratio may be waived by Power Trends in certain
cases, in which event the minimum exchange ratio will be disregarded
in the determination of the exchange ratio; and

- each share of common stock of Power Acquisition outstanding immediately
prior to the merger will be converted into one share of common stock of
the surviving corporation.

No fractional shares of Texas Instruments common stock will be issued in
the merger. A holder of Power Trends common stock who would otherwise be
entitled to receive fractional shares of Texas Instruments common stock as a
result of the merger will receive, in lieu of fractional shares, cash in an
amount equal to the closing price per share of Texas Instruments common stock on
the date of the merger multiplied by the fractional part of the share of Texas
Instruments common stock to which the holder would otherwise be entitled. Texas
Instruments will make available to Harris Trust & Savings Bank, as exchange
agent, from time to time sufficient cash amounts to satisfy payment for
fractional shares and Harris Trust will distribute such proceeds, without
interest, to the holders of the fractional interests.

TREATMENT OF STOCK OPTIONS

Upon the consummation of the merger, subject to certain conditions and
limitations contained in the merger agreement, each outstanding option to
purchase shares of Power Trends common stock will be assumed by Texas
Instruments and converted into an option, or a new substitute option will be
granted, to purchase the number of shares of Texas Instruments common stock,
rounded up to the nearest whole share, equal to the number of shares of Power
Trends common stock subject to the original option multiplied by the exchange
ratio in the merger agreement. Pursuant to their existing terms, all such
options will fully vest and become immediately exercisable upon completion of
the merger. The exercise price per share of Texas Instruments common stock under
the new option will be equal to the former exercise price per share of Power
Trends common stock under the option immediately prior to the merger divided by
the exchange ratio, and rounded down to the nearest penny. The conversion of any
option to purchase shares of Power Trends common stock that is deemed to be an
"incentive stock option" for U.S. federal income tax purposes may involve an
adjustment of the conversion formula for the conversion to comply with certain
U.S. federal income tax laws. Except as described above, each new option to
purchase shares of Texas Instruments common stock will be subject to the same
expiration date and vesting provisions as are applicable to the related Power
Trends stock option immediately prior to the merger.

EXCHANGE PROCEDURES

As soon as reasonably practical after the merger, Harris Trust will mail a
letter of transmittal and instructions to each record holder of certificates
that, immediately prior to the merger, represented outstanding shares of Power
Trends common stock or preferred stock that were converted into Texas
Instruments common stock in the merger. After receipt of the transmittal form,
each holder should surrender their Power Trends stock certificates to Harris
Trust, together with the letter of transmittal duly executed and completed in
accordance with the instructions provided by Harris Trust. Upon surrender of the
certificates to, and acceptance of the certificates by, Harris Trust, each
holder will be entitled to receive:

- certificates of Texas Instruments common stock representing the whole
number of shares of Texas Instruments common stock to which the holder is
entitled, less the number of shares contributed on the holder's behalf to
the Escrow Fund; and

- a check in the amount equal to the cash that the holder has the right to
receive pursuant to the merger agreement, including cash in lieu of any
dividends and other distributions with respect to the shares represented
by the Texas Instruments stock certificates and cash in lieu of
fractional shares.

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If any shares of Texas Instruments common stock are to be issued in a name
other than that in which the certificate(s) representing Power Trends common
stock or preferred stock surrendered in exchange for shares of Texas Instruments
common stock is registered, the certificates surrendered must be properly
endorsed or otherwise be in proper form for transfer, and all documents required
to prove that any applicable stock transfer taxes have been paid or are not
applicable must be provided Harris Trust. No interest will be paid on any merger
consideration.

After the merger, no holder of a certificate which, immediately prior to
the merger, represented shares of Power Trends common stock or preferred stock
will be entitled to receive any dividend or other distribution from Texas
Instruments until the holder surrenders its Power Trends stock certificate for a
certificate representing shares of Texas Instruments common stock. Upon
surrender, the holder will receive any amount of cash payable in lieu of
fractional shares of Texas Instruments common stock and the amount of any
dividends or other distributions that, after the consummation of the merger,
became payable with respect to the number of whole shares of Texas Instruments
common stock into which the shares of Power Trends common stock or preferred
stock were converted. No interest will be paid on the cash in lieu of fractional
shares, dividends or other distributions.

Any portion of the merger consideration, including any certificates of
Texas Instruments common stock, any dividends or distributions, or any cash owed
in lieu of fractional shares of Texas Instruments common stock, that has not
been distributed to the holders of Power Trends common stock or preferred stock
within 6 months after the merger will be delivered to the surviving corporation.
At the end of that 6 month period, any holders who have not surrendered their
certificates in accordance with the relevant provisions of the merger agreement
may look only to the surviving corporation and Texas Instruments for payment of
their claims for any merger consideration and any dividends or distributions
with respect to the shares of Texas Instruments common stock to which they are
entitled. Any portion of such merger consideration remaining unclaimed by
holders of Power Trends common stock or preferred stock 5 years after
consummation of the merger shall become property of Power Trends, free and clear
of any claims.

None of Texas Instruments, Power Acquisition, Power Trends or Harris Trust,
or any of their respective directors, officers, employees or agents, will be
liable in respect of any merger consideration delivered to a public official
under applicable abandoned property, escheat or similar law.

POWER TRENDS STOCKHOLDERS SHOULD NOT SEND THEIR POWER TRENDS STOCK
CERTIFICATES TO TEXAS INSTRUMENTS OR POWER TRENDS. POWER TRENDS STOCK
CERTIFICATES WILL ONLY BE EXCHANGED FOR CERTIFICATES OF SHARES OF TEXAS
INSTRUMENTS COMMON STOCK FOLLOWING THE CONSUMMATION OF THE MERGER IN ACCORDANCE
WITH INSTRUCTIONS WHICH POWER TRENDS OR HARRIS TRUST WILL SEND TO POWER TRENDS
STOCKHOLDERS AFTER THE MERGER.

DIRECTORS AND OFFICERS

The board of directors of the surviving corporation after the merger will
consist of the directors of Power Acquisition immediately prior to the merger.
The officers of the surviving corporation after the merger will be the officers
of Power Acquisition immediately prior to the merger.

Each director and officer of the surviving corporation will hold office
from the effective time of the merger until his or her respective successor is
duly elected or appointed and qualified in the manner provided in the charter or
bylaws of the surviving corporation, or as otherwise provided by applicable law.

ARTICLES OF INCORPORATION AND BYLAWS

The articles of incorporation of Power Trends in effect immediately prior
to the merger will be amended and restated in the manner specified in Annex D
hereto. The bylaws of Power Acquisition in effect immediately prior to the
merger will be the bylaws of the surviving corporation until they are amended in
accordance with their terms or as provided by applicable law.

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REPRESENTATIONS AND WARRANTIES

The merger agreement contains various customary representations and
warranties of Power Trends relating to, among other things:

- its organization, standing and similar corporate matters;

- its capital structure and the capital structure of its subsidiaries;

- authorization, execution, delivery, performance and enforceability of the
merger agreement;

- financial statements;

- the absence of undisclosed liabilities of Power Trends and any of its
subsidiaries;

- the absence of material changes or events relating to Power Trends and
its subsidiaries;

- the accuracy of information supplied by Power Trends in connection with
the registration statement filed with the Securities and Exchange
Commission by Texas Instruments and this proxy statement/prospectus;

- regulatory consents or approvals required in connection with the merger;

- books and records;

- title to assets;

- accounts receivable;

- real property;

- the absence of any pending or threatened litigation against Power Trends
or any of its subsidiaries;

- permits and licenses;

- employee arrangements and benefit plans;

- labor matters;

- environmental matters;

- tax matters;

- the absence of any questionable payments made by Power Trends, its
subsidiaries or, to the knowledge of Power Trends, any director, officer
or employee of Power Trends or any of its subsidiaries;

- material contracts;

- subsidies between or among Power Trends or any of its subsidiaries and
any governmental entity or other person;

- intellectual property;

- year 2000 matters;

- the absence of any broker's, finder's or investment banker's fees owed in
connection with the merger, except for that of SG Cowen;

- accounting matters regarding the treatment of the merger as a "pooling of
interests";

- product recalls; and

- exemption of the merger agreement from the Illinois takeover statute.

The representations and warranties of Power Trends will survive until Texas
Instruments files its Annual Report on Form 10-K for the year ending December
31, 1999, provided that the representations

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and warranties regarding contracts, intellectual property, tax matters, employee
benefits, litigation, environmental matters and Year 2000 matters will survive
until the first anniversary of the consummation of the merger.

The merger agreement also contains various representations and warranties
of Texas Instruments and Power Acquisition relating to, among other things:

- their organization, standing and similar corporate matters;

- authorization, execution, delivery, performance and enforceability of the
merger agreement;

- documents filed by Texas Instruments with the SEC and financial
statements;

- the accuracy of information supplied by Texas Instruments or Power
Acquisition in connection with the registration statement filed with the
Securities and Exchange Commission by Texas Instruments and this proxy
statement/prospectus;

- regulatory consents or approvals required in connection with the merger;

- the absence of any broker's, finder's or investment banker's fees owed in
connection with the merger; and

- accounting matters regarding the treatment of the merger as a "pooling of
interests."

CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER

During the period from the date of the merger agreement until the merger,
Power Trends has agreed to:

- conduct its operations in the ordinary and usual course of business
consistent with past practice; and

- use its best efforts to:

(1) preserve intact its current business organizations;

(2) and preserve its relationships with customers, suppliers and
others having business dealings with it.

Further, Power Trends has agreed that, among other things and subject to
various conditions and exceptions, it will not:

- amend its articles of incorporation or bylaws;

- declare, set aside or pay any dividend or other distribution in respect
of its capital stock;

- redeem, repurchase or otherwise acquire any of its securities or retire
any indebtedness;

- make or guarantee any loan or advances to another person;

- impose or permit the creation of any lien on its assets;

- grant any option to acquire its common stock;

- pay a bonus to any employee or change the base compensation of any
employee;

- sell, lease, transfer or dispose of any of its assets used in the conduct
of its business except in the ordinary course of business consistent with
past practice;

- change any of its accounting principles or methods;

- terminate, accelerate or modify any existing contract or agreement, other
than in the ordinary and usual course of business consistent with past
practice;

- make any new capital expenditure or expenditures in excess of $100,000,
in the aggregate;
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- settle or compromise any pending or threatened suit, action or claim
outside the ordinary course of business;

- take any action that would prevent or impede the merger from qualifying
as a "pooling of interests" for accounting purposes or as a
reorganization under Section 368 of the Internal Revenue Code; or

- adopt, enter into, amend, alter or terminate, partially or completely,
any of Power Trends' benefit plans except as contemplated by the merger
agreement.

CONDITIONS TO THE COMPLETION OF THE MERGER

The respective obligations of Power Acquisition, Texas Instruments and
Power Trends to consummate the merger are subject to the satisfaction or waiver
of certain conditions, including that:

- the holders of Power Trends common stock and the holders of Power Trends
preferred stock will have approved and adopted the plan of merger by the
requisite vote;

- any waiting periods applicable to the merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 will have expired or been terminated
without limitation, restriction or condition;

- no suit or proceeding will have been initiated or threatened that could
have the effect restraining, enjoining, delaying, interfering with or
otherwise preventing consummation of the merger;

- the Securities and Exchange Commission will have declared the
registration statement, of which this proxy statement/prospectus is a
part and filed by Texas Instruments in connection with the registration
under the Securities Act of shares of Texas Instruments common stock to
be issued in the merger, effective, and the registration statement will
still be effective at the time of the merger, with no stop order
suspending its effectiveness having been issued and no action, suit,
proceeding or investigation by the Securities and Exchange Commission to
suspend its effectiveness having been initiated and be continuing; and

- the Texas Instruments common stock required to be issued under the merger
agreement will have been approved for listing on the New York Stock
Exchange, subject only to official notice of issuance.

The obligations of Texas Instruments and Power Acquisition to consummate
the merger are further subject to satisfaction or waiver of the following
conditions:

- the representations and warranties of Power Trends contained in the
merger agreement will be true in all material respects on the date of
merger as if they were made at and as of the merger date;

- Power Trends will have performed or complied in all material respects
with all agreements and conditions contained in the merger agreement
required to be performed or complied with by it prior to or at the time
of the merger and will have executed and delivered all documents that it
is required to execute and deliver at or prior to the date of the merger;

- Texas Instruments and Power Acquisition will have received an opinion of
its tax counsel, Weil, Gotshal & Manges LLP, dated the date of the
merger, to the effect that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code;

- Texas Instruments will have received an opinion of counsel as to certain
legal matters from Johnson and Colmar;

- holders of no more than 5% of Power Trends common stock (assuming
conversion of all shares of Power Trends preferred stock into common
stock) will have exercised, and not withdrawn or forfeited, dissenter's
rights under Illinois law;

- a certain warrant to purchase Power Trends common stock shall have been
exercised; and

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- Power Trends will have received and delivered to Texas Instruments a
letter from Arthur Andersen LLP dated the date of the merger, stating
that the treatment of the merger as a "pooling of interests" for
accounting purposes is appropriate if the merger is consummated as
contemplated by the merger agreement and Texas Instruments will have
received a letter from Ernst & Young LLP, dated the date of the merger,
stating that treatment of the merger as a "pooling of interests" for
accounting purposes is appropriate if the merger is consummated as
contemplated by the merger agreement.

The obligations of Power Trends to consummate the merger are further
subject to satisfaction or waiver of the following conditions:

- the representations and warranties of Texas Instruments and Power
Acquisition contained in the merger agreement will be true in all
material respects on the date of the merger as if they were made at and
as of the merger date;

- Texas Instruments will have performed or complied in all material
respects with all agreements and conditions contained in the merger
agreement required to be performed or complied with by it prior to or at
the time of the merger and will have executed and delivered all documents
that it is required to execute and deliver at or prior to the date of the
merger;

- Power Trends will have received an opinion of counsel as to certain legal
matters from Weil, Gotshal & Manges LLP; and

- Power Trends will have received an opinion of its tax counsel, Johnson
and Colmar, dated the date of the merger, to the effect that the merger
will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code.

ADDITIONAL COVENANTS OF POWER TRENDS AND TEXAS INSTRUMENTS

Each of Texas Instruments, Power Acquisition and Power Trends have also
agreed, among other things and subject to various conditions and exceptions,
that:

- as soon as practicable following the date of the merger agreement, Texas
Instruments and Power Trends will jointly prepare this proxy
statement/prospectus in connection with the vote of the stockholders of
Power Trends in respect of the merger and Texas Instruments will file
with the Securities and Exchange Commission a registration statement, of
which this proxy statement/ prospectus is a part, in connection with the
registration under the Securities Act of the shares of Texas Instruments
common stock to be issued in connection with the merger;

- Power Trends will use reasonable best efforts to cause Arthur Andersen
LLP to deliver a customary "comfort" letter dated a date within two
business days before the date on which the registration statement filed
by Texas Instruments will become effective and addressed to Texas
Instruments;

- Texas Instruments will use reasonable best efforts to cause Ernst & Young
LLP to deliver a customary "comfort" letter dated a date within two
business days before the date on which the registration statement will
become effective and addressed to Power Trends;

- Power Trends will:

(1) hold a special meeting of its stockholders as soon as practicable
after the date of the merger agreement for the purpose of voting
on the approval and adoption of the merger on substantially the
terms and conditions set forth in the merger agreement; and

(2) solicit proxies from its stockholders to obtain the requisite vote
for that approval;

- the Power Trends board of directors will recommend approval and adoption
of the merger by Power Trends' stockholders and, subject to certain
exceptions, will not withdraw, amend or modify in a manner adverse to
Texas Instruments such recommendation, or announce publicly its intention
to do so;

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- each party will use its reasonable best efforts to take, or cause to be
taken, all actions and do, or cause to be done, all things necessary,
proper or advisable under applicable laws to consummate the merger;

- each party will use its reasonable best efforts to obtain all requisite
approvals and authorizations for the merger, including, without
limitation, those notification and report forms required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;

- each party will use its reasonable best efforts to resolve any objections
asserted by a governmental entity or other person in respect of the
merger under any antitrust law;

- Power Trends will inform Texas Instruments of any litigation brought
against Power Trends or its directors relating to the merger and will
consult with and obtain Texas Instruments' prior written consent before
entering into any settlement or compromise of any such litigation;

- Power Trends will provide Texas Instruments and Power Acquisition and
their authorized representatives reasonable access to all employees,
plants, offices, warehouses and other facilities and to all books and
records of Power Trends and its subsidiaries;

- each party will consult with each of the others before issuing any press
release or otherwise making any public statements in respect of the
merger;

- each party will use its reasonable best efforts to cause the merger to
qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code;

- Texas Instruments and Power Acquisition will take or cause to be taken
certain actions related to employee matters, including, without
limitation, to honor the obligations of Power Trends under the provisions
of all of its employee benefit plans and employee arrangements subject to
Texas Instruments' right to amend or terminate any such plans or
arrangements;

- Texas Instruments will use its reasonable best efforts to cause the
shares of Texas Instruments common stock to be issued in connection with
the merger to be listed on the New York Stock Exchange, subject only to
official notice of issuance;

- Power Trends will terminate its 401(k) retirement plan, effective
immediately prior to merger;

- not later than 45 days prior to the date of Power Trends' special
meeting, Power Trends cause its "affiliates" to deliver to Texas
Instruments an affiliate letter for purposes of Rule 145 under the
Securities Act; and

- as soon as practicable prior to the merger date, Power Trends shall
secure releases of all liens and assignments of intellectual property by
Power Trends to Comdisco Ventures and shall file the appropriate
documents evidencing such releases and reassignments, including a
statement by Comdisco Ventures that no rights were conferred to third
parties.

Power Trends has further agreed not to, or authorize or permit any officer,
director or employee of or any investment banker, attorney, accountant or other
advisor or representative of Power Trends to, directly or indirectly:

- solicit, initiate or encourage the submission of any Acquisition Proposal
(as defined below); or

- participate in any discussions or negotiations regarding, or furnish to
any person any information in respect of, or take any other action to
facilitate, any Acquisition Proposal or any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to,
any Acquisition Proposal.

Power Trends will notify Texas Instruments of any Acquisition Proposal as
promptly as practicable. Power Trends has also agreed to terminate any existing
activities, discussions or negotiations with any parties conducted before the
execution of the merger agreement relating to any Acquisition Proposal.

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Power Trends' board of directors will not withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Texas Instruments, its approval or
recommendation of the merger unless the Power Trends board of directors, after
consultation with independent legal counsel, determines in good faith that such
action is necessary to comply with the Power Trends board of directors' duties
to Power Trends' stockholders under applicable law.

"Acquisition Proposal" means any inquiry, offer or proposal regarding any
of the following, other than the transactions contemplated by the merger
agreement, involving Power Trends or any of its subsidiaries:

- any merger, consolidation, share exchange, recapitalization, business
combination or other similar transaction;

- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of all or substantially all the assets of Power Trends and
its subsidiaries, taken as a whole, in a single transaction or series of
related transactions;

- any tender offer or exchange offer for 20% or more of the outstanding
capital stock of Power Trends or the filing of a registration statement
under the Securities Act in connection with any such tender or exchange
offer; or

- any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.

TERMINATION OF THE MERGER AGREEMENT

The merger agreement may be terminated and the merger may be abandoned at
any time prior to the time of the merger:

- by mutual written consent of Power Trends and Texas Instruments;

- by either Power Trends or Texas Instruments if:

(1) the merger is not consummated by December 31, 1999; provided,
however, that if any condition to closing pertaining to stockholder
approval, effectiveness of the registration statement, regulatory
approvals, or listing of Texas Instruments common stock on the New York
Stock Exchange that remains reasonably capable of satisfaction has not been
fulfilled or waived by December 31, 1999, the termination date will be
extended to February 28, 2000;

(2) the required approval of the stockholders of Power Trends has not
been obtained; or

(3) any law permanently restrains, enjoins or otherwise prohibits
consummation of the merger;

provided that the terminating party has not breached in any material
respect its obligations under the merger agreement in a manner that
proximately causes the merger not to be consummated;

- by Power Trends if:

(1) there is a breach by Texas Instruments or Power Acquisition of any
representation, warranty, covenant or agreement contained in the merger
agreement that cannot be cured and would cause certain closing conditions
to be incapable of being satisfied prior to February 28, 2000; or

(2) the average Texas Instruments common stock price used to calculate
the exchange ratio is less than $67.00 per share and Power Trends gives
written notice to Texas Instruments during the 24-hour period following
such calculation, except that Texas Instruments may elect to waive the
application of the minimum price provision in determining the exchange
ratio, in which case Power Trends' termination shall be void.

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- by Texas Instruments if:

(1) there is a breach by Power Trends of any representation, warranty,
covenant or agreement contained in the merger agreement that cannot be
cured and would cause certain closing conditions to be incapable of being
satisfied prior to February 28, 2000;

(2) the condition regarding dissenters' rights set forth in the merger
agreement is not satisfied; or

(3) the average Texas Instruments common stock price used to calculate
the exchange ratio is greater than $107.00 and Texas Instruments gives
written notice to Power Trends in the 24-hour period following such
calculation, except that Power Trends may elect to waive the application of
the maximum price provision in determining the exchange ratio, in which
case Texas Instruments' termination shall be void.

TERMINATION FEES

If the merger agreement is terminated:

- by Texas Instruments or Power Trends because the merger was not completed
by the later of December 31, 1999, or February 28, 2000, if extended as
contemplated by the merger agreement;

- by either party because the Power Trends stockholders do not approve the
merger;

- by Texas Instruments because Power Trends breaches a material obligation
under the merger agreement that is not cured; or

- by Texas Instruments pursuant to the maximum price provision described
above (and Power Trends has not elected to waive the application of the
maximum price provision);

and Power Trends enters into an agreement with another party to acquire Power
Trends within 12 months of the termination, then Power Trends must pay Texas
Instruments a termination fee of $6,000,000.

ESCROW FUND

At the time of the merger, 5% of the shares of Texas Instruments common
stock to be delivered to Power Trends stockholders pursuant to the merger
agreement will be put into an escrow fund. The escrow fund will be managed by
Harris Trust and Savings Bank, as depositary agent. The escrow fund will be
Texas Instruments' sole and exclusive remedy for any and all losses incurred or
sustained by Texas Instruments as a result of any inaccuracy or breach by Power
Trends of any provisions of the merger agreement. Texas Instruments may not make
any claims against the escrow fund unless the aggregate losses incurred exceed
$250,000, at which time claims may be made for all losses in excess of that
amount. To the extent not used to satisfy claims of Texas Instruments, the
escrow fund will be paid to Power Trends' stockholders one year from the date of
consummation of the merger, unless this date is extended while claims made by
Texas Instruments are pending. Power Trends' stockholders will be entitled to
receive dividends on and vote the escrowed shares at Texas Instruments
stockholders' meetings while the shares are being held in escrow. Under the
merger agreement, William N. Sick, Jr., James E. Forrest and Lloyd D. Ruth will
be appointed as stockholder representatives with respect to the escrow fund,
effective upon approval of the merger by the Power Trends stockholders and any
two of them shall have authority to act for Power Trends' stockholders with
respect to the escrow fund.

AMENDMENT OF THE MERGER AGREEMENT

The merger agreement may be amended at any time in writing signed by all
parties to the merger agreement before or after the approval of the merger by
the Power Trends stockholders but, after their approval, no amendment shall be
made that changes the amount or form of the merger consideration.

EXTENSION AND WAIVER

At any time before the merger, each party to the merger agreement may
extend the time for performance of any obligation or act of another party, waive
any inaccuracies in the representations and warranties of another party or waive
compliance by the other party with any of the agreements or conditions contained
in the merger agreement.

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<PAGE> 75

VOTING AGREEMENT

The following description of certain terms of the voting agreement is only
a summary of the material provisions of the described agreement and does not
purport to be complete. Stockholders should read carefully the voting agreement.
The voting agreement is attached to this proxy statement/prospectus as Annex B.

In order to induce Texas Instruments to enter into the merger agreement,
certain stockholders of Power Trends entered into a voting agreement with Texas
Instruments on September 29, 1999. The stockholders who signed the voting
agreement have agreed to vote an aggregate of 1,321,518 shares of Power Trends
common stock and 105,900 shares of Power Trends preferred stock, representing
approximately 43% and 84% of the total then outstanding voting power of the
Power Trends common stock and preferred stock, respectively, as of the date of
the voting agreement, in favor of approval of the merger. The voting agreement
further provides that certain holders of Power Trends preferred stock will
convert a sufficient number of shares of Power Trends preferred stock into Power
Trends common stock to assure the requisite approval of the merger by the
holders of each of the Power Trends common stock and Power Trends preferred
stock. On October 27, 1999, 25,000 shares of Power Trends preferred stock were
converted into 2,500,000 shares of common stock pursuant to such provision.
After giving effect to such conversion, the stockholders who are parties to the
voting agreement owned, as of the record date, approximately 69% of the
outstanding shares of Power Trends common stock and approximately 80% of the
outstanding shares of Power Trends preferred stock.

PROHIBITED ACTIONS

Each stockholder party to the voting agreement also agreed not to enter
into any voting agreement or grant a proxy or power of attorney with respect to
Power Trends capital stock in any manner inconsistent with that stockholder's
obligations under the voting agreement or take any other action that is
inconsistent with the obligations of the stockholder under the voting agreement,
including any action that would prevent or materially delay the consummation of
the merger.

OTHER PROVISIONS

The voting agreement also contains provisions relating to, among other
things, representations and warranties by the parties and specific performance
of the voting agreement. The voting agreement terminates upon the earlier to
occur of:

- the time of the merger;

- 90 days after:

(1) termination of the merger agreement by Texas Instruments because
Power Trends breaches a covenant or agreement that cannot be cured;
or

(2) termination by Texas Instruments because holders of more than 5% of
Power Trends common stock (assuming conversion of all shares of
Power Trends preferred stock into common stock) have exercised, and
not withdrawn or forfeited, dissenter's rights under Illinois law;
and

- the termination of the merger agreement for any other reason in
accordance with its terms.

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BUSINESS OF TEXAS INSTRUMENTS

SEMICONDUCTOR

Texas Instruments is a global semiconductor company and the world's leading
designer and supplier of digital signal processors and analog integrated
circuits, the engines driving the digitization of electronics. These two types
of semiconductor products work together in digital electronic devices such as
digital cellular phones. Analog technology converts analog signals like sound,
light, temperature and pressure into the digital language of zeros and ones,
which can then be processed in real-time by a digital signal processor. Analog
integrated circuits also translate digital signals back to analog. Digital
signal processors and analog integrated circuits enable a wide range of new
products and features for Texas Instruments' more than 30,000 customers in
commercial, industrial and consumer markets.

Texas Instruments also is a world leader in the design and manufacturing of
other semiconductor products. Those products include standard logic,
application-specific integrated circuits, reduced instruction-set computing
microprocessors, and microcontrollers.

The semiconductor business comprised 80% of Texas Instruments' 1998
revenues when the divested memory business is excluded. Texas Instruments'
semiconductor products are used in a diverse range of electronic systems,
including digital cell phones, computers, printers, hard disk drives, modems,
networking equipment, digital cameras and video recorders, motor controls,
autos, and home appliances. Products are sold primarily to original-equipment
manufacturers and through distributors. Texas Instruments' semiconductor patent
portfolio has been established as an ongoing contributor to semiconductor
revenues. Revenues generated from sales to Texas Instruments' top three
semiconductor customers accounted for approximately 24% of total semiconductor
revenues in 1998.

The semiconductor business is intensely competitive, subject to rapid
technological change and pricing pressures, and requires high rates of
investment. Texas Instruments is the leading supplier of digital signal
processors and analog integrated circuits, yet faces strong competition in all
of its semiconductor product lines. The rapid pace of change and technological
breakthroughs constantly create new opportunities for existing competitors and
start-ups, which can quickly render existing technologies less valuable.

In digital signal processors, Texas Instruments competes with a growing
number of large and small companies, both U.S.-based and international. New
product development capabilities, applications support, software knowledge and
advanced technology are the primary competitive factors in this business.

The market for analog integrated circuits is highly fragmented. Texas
Instruments competes with many large and small companies, both U.S.-based and
international. Primary competitive factors in this business are the availability
of innovative designs and designers, a broad range of process technologies and
applications support and, particularly in the standard products area, price.

DEMAND FOR DIGITAL SIGNAL PROCESSORS/ANALOG INTEGRATED CIRCUITS

Texas Instruments has undertaken a business strategy that focuses on
developing and marketing digital signal processors and analog integrated
circuits. Texas Instruments has divested certain of its businesses and acquired
others and invested its resources with the view of furthering its focus on these
products. While Texas Instruments believes that focusing its efforts on digital
signal processors and analog integrated circuits offers the best opportunity for
Texas Instruments to achieve its strategic goals and that Texas Instruments has
developed, and will continue to develop, a wide range of innovative and
technologically advanced products, the results of Texas Instruments' operations
may be adversely affected in the future if the demand for digital signal
processors and analog integrated circuits decreases or this market grows at a
pace significantly less than that projected by management.

ACQUISITIONS AND DIVESTITURES

From time to time Texas Instruments considers acquisitions and divestitures
that may strengthen its business portfolio. Texas Instruments may effect one or
more of these transactions at such time or times as
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<PAGE> 77

it determines to be appropriate. In 1998, as Texas Instruments narrowed its
focus to digital signal processors and analog integrated circuits, it acquired
technology companies that brought unique expertise to these core product areas.
In the first quarter, Texas Instruments acquired GO DSP Corporation, a developer
of software development tools for digital signal processors; Spectron
Microsystems, a developer of real-time operating software for use in digital
signal processing applications; and Oasix and Arisix corporations, both digital
integrated circuit design centers for hard disk drive products. In the fourth
quarter, Texas Instruments acquired certain assets of Adaptec, Inc., a developer
of hardware and software for the high-end hard disk drive market, a market that
increasingly will use digital signal processors in addition to analog integrated
circuits.

In addition, in 1998, Texas Instruments divested its dynamic random-access
memory (DRAM) semiconductor operation. The business was sold in the third
quarter to Micron Technology, Inc., and included Texas Instruments' wholly owned
manufacturing facilities in Avezzano, Italy, and Richardson, Texas, its
joint-venture interests in Japan and Singapore, and an assembly and test
operation in Singapore.

OTHER TEXAS INSTRUMENTS BUSINESSES

In addition to semiconductors, Texas Instruments has two other principal
segments. The largest, representing 12% of Texas Instruments' 1998 revenues when
the memory business is excluded, is Materials & Controls (M&C). This business
sells electrical and electronic controls, electronic connectors, sensors,
radio-frequency identification systems and clad metals into commercial and
industrial markets. Typically the top supplier in targeted product areas, M&C
faces strong multinational and regional competitors. The primary competitive
factors in this business are product reliability, manufacturing costs, and
engineering expertise. The products of this business are sold directly to
original-equipment manufacturers and through distributors. Revenues generated
from sales to Texas Instruments' top three M&C customers accounted for
approximately 15% of total M&C revenues in 1998.

Educational & Productivity Solutions (E&PS) represents 6% of Texas
Instruments' 1998 revenues when the memory business is excluded, and is a
leading supplier of educational and graphing calculators. This business sells
primarily through retailers and to schools through instructional dealers. Texas
Instruments' principal competitors in this business are several Japanese
companies. Technology expertise, price and infrastructure for education and
market understanding are primary competitive factors in this business. Revenues
generated from sales to Texas Instruments' top three E&PS customers accounted
for approximately 26% of total E&PS revenues in 1998.

In addition, Texas Instruments continues to invest in digital imaging, an
emerging business that produces micro-mirror-based devices that enable
revolutionary brightness and clarity in large-screen video displays. The primary
sales route is directly to original-equipment manufacturers. Texas Instruments
faces competition in this business primarily from a competing technology known
as liquid crystal displays from Asian manufacturers. Primary competitive factors
in this business are price, brightness and performance of the display, and in
some applications, size and weight.

GENERAL INFORMATION

Texas Instruments is headquartered in Dallas, Texas, and has manufacturing,
design or sales operations in more than 25 countries. Texas Instruments' largest
geographic markets are in the United States, Asia, Japan and Europe. Texas
Instruments has been in operation since 1930.

The financial information with respect to Texas Instruments' business
segments and operations outside the United States, which is contained in the
note to the financial statements captioned "Business Segment and Geographic Area
Data" in the notes to Texas Instruments' consolidated financial statements on
pages F-24 through F-26 of this proxy statement/prospectus.

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<PAGE> 78

BACKLOG

The dollar amount of backlog of orders believed by Texas Instruments to be
firm was $1,233 million as of December 31, 1998 and $1,623 million as of
December 31, 1997. Texas Instruments' backlog does not represent actual revenues
and is only an indication of future revenues which may be entered on the books
of account of Texas Instruments. Backlog orders are, under certain
circumstances, subject to cancellation by the purchaser without penalty and do
not reflect any potential adjustments for price decreases.

RAW MATERIALS

Texas Instruments purchases materials, parts and supplies from a number of
suppliers. The materials, parts and supplies essential to Texas Instruments'
business are generally available at present and Texas Instruments believes at
this time that such materials, parts and supplies will be available in the
foreseeable future.

PATENTS AND TRADEMARKS

Texas Instruments owns many patents in the United States and other
countries in fields relating to its business. Texas Instruments has developed a
strong, broad-based patent portfolio. Texas Instruments also has several
agreements with other companies involving license rights and anticipates that
other licenses may be negotiated in the future. Texas Instruments does not
consider its business materially dependent upon any one patent or patent
license, although taken as a whole, the rights of Texas Instruments and the
products made and sold under patents and patent licenses are important to Texas
Instruments' business.

Texas Instruments owns trademarks that are used in the conduct of its
business. These trademarks are valuable assets, the most important of which are
"Texas Instruments" and Texas Instruments' corporate monogram.

RESEARCH AND DEVELOPMENT

Texas Instruments' research and development expense was $1,206 million in
1998, compared with $1,536 million in 1997 and $1,181 million in 1996. Included
is a charge for the value of in-process research and development of $25 million
in 1998 as a result of two business acquisitions; $461 million in 1997 as a
result of the acquisition of Amati Communications Corporation; and $192 million
in 1996 as a result of the acquisition of Silicon Systems, Inc.

SEASONALITY

Texas Instruments' revenues and operating results are subject to some
seasonal variation.

EMPLOYEES

As of June 30, 1999, Texas Instruments had approximately 35,000 employees.

PROPERTIES

Texas Instruments' principal executive offices are located at 8505 Forest
Lane, Dallas, Texas. Texas Instruments owns and leases plants in the United
States and 11 other countries for manufacturing and related purposes. The
following table indicates the general location of Texas Instruments' principal
plants

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<PAGE> 79

and the business segments which make major use of them. Except as otherwise
indicated, the principal plants are owned by Texas Instruments.

<TABLE>
<CAPTION>
MATERIALS
SEMICONDUCTOR & CONTROLS E&PS
------------- ---------- ----
<S> <C> <C> <C>
Dallas, Texas(1)............................................ X X X
Houston, Texas.............................................. X
Sherman, Texas(1)(2)........................................ X
Santa Cruz, California...................................... X
Attleboro, Massachusetts.................................... X X
Freising, Germany........................................... X X
Baguio, Philippines(3)...................................... X
Hiji, Japan................................................. X
Kuala Lumpur, Malaysia(4)................................... X X
Miho, Japan................................................. X
Taipei, Taiwan.............................................. X
Aguascalientes, Mexico...................................... X X
</TABLE>

- ---------------

(1) Certain plants or portions thereof in Dallas and Sherman are leased to
Raytheon Company or Raytheon-related entities in connection with the sale in
1997 of Texas Instruments' defense systems and electronics business.
(2) Leased.
(3) Owned on leased land.
(4) Approximately half of this site is owned on leased land; the remainder is
leased.

Texas Instruments' facilities in the United States contained approximately
17,700,000 square feet as of December 31, 1998, of which approximately 3,300,000
square feet were leased. Texas Instruments' facilities outside the United States
contained approximately 5,600,000 square feet as of December 31, 1998, of which
approximately 1,300,000 square feet were leased.

Texas Instruments believes that its existing properties are in good
condition and suitable for the manufacture of its products. At the end of 1998,
Texas Instruments utilized substantially all of the space in its facilities.

Leases covering Texas Instruments' leased facilities expire at varying
dates generally within the next 10 years. Texas Instruments anticipates no
difficulty in either retaining occupancy through lease renewals, month-to-month
occupancy or purchases of leased facilities, or replacing the leased facilities
with equivalent facilities.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Texas Instruments' restated certificate of incorporation and bylaws provide
for the indemnification of directors and officers in the event they become
parties to legal proceedings arising in connection with their positions with
Texas Instruments. The SEC has expressed its position that the indemnification
of directors, officers and controlling person against liabilities arising under
the Securities Act is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

All of the current directors and executive officers of Texas Instruments
will be the directors and executive officers of Texas Instruments following the
merger. For information regarding these directors and executive officers and
executive compensation, see "Management of Texas Instruments."

WHERE YOU CAN FIND MORE INFORMATION ABOUT TEXAS INSTRUMENTS

Texas Instruments (File No. 1-3761) files annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements and other information filed by Texas Instruments at
the SEC's public reference room, at 450 Fifth Street, N.W.,

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Washington, D.C., as well as at public reference rooms in New York, New York,
and Chicago, Illinois. Please call (800) SEC-0330 for further information on the
public reference rooms. Texas Instruments' filings are also available to the
public from commercial document retrieval services and at the internet web site
maintained by the SEC at http://www.sec.gov.

Texas Instruments has filed a registration statement on Form S-4 to
register with the SEC the Texas Instruments common stock to be issued to
stockholders of Power Trends in the merger. This proxy statement/prospectus is
part of that registration statement and constitutes a prospectus of Texas
Instruments in addition to being a proxy statement of Power Trends for its
special meeting of stockholders.

Texas Instruments has supplied all information contained in this proxy
statement/prospectus relating to Texas Instruments or Power Acquisition and
Power Trends has supplied all information relating to Power Trends.

BUSINESS OF POWER TRENDS

Power Trends was incorporated in September 1987 to meet the need for small
and highly efficient integrated switching regulators and DC-to-DC converters in
the 5-to-100 watt range for direct use on circuit boards. It has become a
leading designer, manufacturer and supplier of on-board, low-voltage, modular
power products. Demand for these products has arisen as a result of the
proliferation of high-performance, low-voltage microprocessors, digital signal
processors and other devices which require "point-of-use" power regulation to
provide the very low voltages and high current requirements that cannot be
provided effectively by a central power supply.

Power Trends focuses its product design and marketing efforts on three
end-product segments: computer systems, communications and industrial equipment.
Power Trends has a world-wide customer base of more than 3,000 active customers.
During the year ended June 30, 1999, its top five customers were, in order,
Cisco Systems, Inc., IBM Corporation, Hewlett-Packard Company, Data General
Corp. and 3Com Corporation, which together accounted for 43% of Power Trends
sales. Total net sales were $39,015,000 for the year.

Power Trends sells its products through a direct sales force and through 14
distributors and 17 sales representatives in the United States, Europe and
Israel.

Power Trends' primary direct competitor in supplying modular power products
is Lucent Technologies, Inc. Power Trends also competes with the decision of
equipment manufacturers to develop their own distributed power supply solutions
utilizing regulator integrated circuits and other discrete components.

Power Trends occupies approximately 56,000 square feet of office and
manufacturing facilities in Warrenville, Illinois under two leases expiring in
May 2006 and June 2007. It also maintains sales offices in Arlington,
Massachusetts, San Jose, California, and Basingstoke, England.

At September 30, 1999, Power Trends employed 243 full-time regular and
temporary employees.

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MANAGEMENT OF TEXAS INSTRUMENTS

DIRECTORS

The following table shows the names and ages of the members of the Board of
Directors of Texas Instruments and the year each person became a director.

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
---- --- --------
<S> <C> <C>
James R. Adams.............................................. 60 1989
David L. Boren.............................................. 58 1995
James B. Busey IV........................................... 67 1992
Daniel A. Carp.............................................. 51 1997
Thomas J. Engibous.......................................... 46 1996
Gerald W. Fronterhouse...................................... 63 1986
David R. Goode.............................................. 58 1996
Wayne R. Sanders............................................ 52 1997
Ruth J. Simmons............................................. 54 1999
Clayton K. Yeutter.......................................... 68 1992
</TABLE>

JAMES R. ADAMS, Director. Chair, Board Organization and Nominating
Committee; member, Audit Committee. Chairman of the Board of Texas Instruments
from 1996 to April 1998. Group president, SBC Communications Inc. from 1992
until retirement in 1995; president and chief executive officer of Southwestern
Bell Telephone Company, 1988-92. Director, Prodigy Communications Corporation.

DAVID L. BOREN, Director. Member, Audit and Stockholder Relations and
Public Policy Committees. President of the University of Oklahoma since 1994.
U.S. Senator, 1979-94; Governor of Oklahoma, 1975-79. Director, AMR Corporation,
Phillips Petroleum Company, Torchmark Corporation and Waddell & Reed, Inc.;
Chairman, Oklahoma Foundation for Excellence.

JAMES B. BUSEY IV, Director. Chair, Audit Committee; member, Board
Organization and Nominating Committee. Retired from U.S. Navy as Admiral in
1989. President and chief executive officer, Armed Forces Communications and
Electronics Association, 1992-96; Deputy Secretary, Department of
Transportation, 1991-92; Administrator, Federal Aviation Administration,
1989-91. Director, Curtiss-Wright Corporation and S.T. Research Corporation;
trustee and vice-chairman, MITRE Corporation.

DANIEL A. CARP, Director. Member, Audit and Board Organization and
Nominating Committees. President and chief operating officer of Eastman Kodak
Company since January 1997; also, director since December 1997. Executive vice
president and assistant chief operating officer of Eastman Kodak, 1995-97;
general manager, European Region, 1991-95.

THOMAS J. ENGIBOUS, Chairman, President and Chief Executive
Officer. President and chief executive officer of Texas Instruments since 1996;
also, chairman since April 1998. Joined Texas Instruments in 1976; elected
executive vice president in 1993. Director, Catalyst, J.C. Penney Company, Inc.;
member, The Business Council and The Business Roundtable; trustee, Southern
Methodist University.

GERALD W. FRONTERHOUSE, Director. Member, Compensation and Board
Organization and Nominating Committees. Investments. Former chief executive
officer (1985-88) of First RepublicBank Corporation. President and director,
Hoblitzelle Foundation.

DAVID R. GOODE, Director. Chair, Compensation Committee; member, Board
Organization and Nominating Committee. Chairman of the board and chief executive
officer of Norfolk Southern Corporation since 1992; also, president since 1991.
Director, Aeroquip-Vickers, Inc., Caterpillar, Inc., Delta Airlines, Inc. and
Georgia-Pacific Corporation; member, The Business Council and The Business
Roundtable; trustee, Hollins College.

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WAYNE R. SANDERS, Director. Member, Compensation and Stockholder Relations
and Public Policy Committees. Chairman of the board of Kimberly-Clark
Corporation since 1992; also, chief executive officer since 1991. Director,
Adolph Coors Company, Coors Brewing Company and Chase Bank of Texas, N.A.;
trustee, Marquette University.

RUTH J. SIMMONS, Director. Member, Audit and Stockholder Relations and
Public Policy Committees. President of Smith College since 1995. Vice Provost of
Princeton University 1991-95. Director, Metropolitan Life Insurance Company and
Pfizer Inc.

CLAYTON K. YEUTTER Director. Chair, Stockholder Relations and Public Policy
Committee; member, Compensation Committee. Of counsel, Hogan & Hartson.
Counselor to President Bush for domestic policy during 1992; chairman,
Republican National Committee, 1991-92; Secretary, Department of Agriculture,
1989-91; U.S. Trade Representative, 1985-89. Director, Allied Zurich, P.L.C.,
Caterpillar Inc., ConAgra, Inc., FMC Corporation, Oppenheimer Funds and
Weyerhaeuser Co.

DIRECTORS' COMPENSATION

Cash Compensation

Directors who are not employees are paid each year:

- A board retainer of $40,000.

- A committee retainer of $15,000.

- $2,500 for attendance at Texas Instruments' strategic planning
conference.

- $2,500 for attendance at Texas Instruments' annual planning conference.

Compensation for other activities, like visits to Texas Instruments
facilities and attendance at certain company events, is $1,000 per day. In 1998,
Texas Instruments made payments (an aggregate of $9,109) relating to premiums
for life, medical, dental, travel and accident insurance policies covering
directors.

Deferral Election

Subject to some limitations, directors can choose to have all or part of
their compensation deferred until they leave the board (or certain other
specified times). The deferred amounts are credited to either a cash account or
stock unit account. Cash accounts earn interest from Texas Instruments at a rate
(currently based on published interest rates on certain corporate bonds)
determined by the Board Organization and Nominating Committee. Stock unit
accounts fluctuate in value with the underlying shares of Texas Instruments
common stock, which will be issued after the deferral period.

Restricted Stock Units

Under Texas Instruments' restricted stock unit plan for directors, new
directors are given 2,000 restricted stock units (each representing one share of
Texas Instruments common stock). The restricted stock units provide for issuance
of Texas Instruments common stock at the time of retirement from the board, or
upon earlier termination of service from the board after completing eight years
of service or because of death or disability.

Stock Options

Under Texas Instruments' stock option plan for non-employee directors,
non-employee directors are annually granted a 10-year option to purchase 5,000
shares of Texas Instruments common stock. The purchase price of the shares is
100% of the fair market value on the date of grant. These nonqualified options
become exercisable in four equal annual installments beginning on the first
anniversary date of the grant and also may become fully exercisable in the event
of a change in control (as defined in the plan) of Texas Instruments.

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Director Award Program

Each director who has been on the board for five years, and whose board
membership ceases because of the mandatory retirement age or, in the case of
non-employee directors, because of death or disability, can participate in a
director award program. The program was established to promote Texas
Instruments' interest in supporting educational institutions. Texas Instruments
may contribute a total of $500,000 per eligible director to up to three
educational institutions or other charitable institutions recommended by the
director and approved by Texas Instruments. The contributions will be made in
five annual installments of $100,000 each following the director's death.
Directors receive no financial benefit from the program, and all charitable
deductions belong to Texas Instruments.

EXECUTIVE OFFICERS

The following is an alphabetical list of the names and ages of the
executive officers of Texas Instruments and the positions or offices with Texas
Instruments presently held by each person named:

<TABLE>
<CAPTION>
AGE POSITION
--- --------
<S> <C> <C>
Richard J. Agnich............................. 56 Senior Vice President, Secretary and General
Counsel
William A. Aylesworth......................... 57 Senior Vice President, Treasurer and Chief
Financial Officer
Thomas J. Engibous............................ 46 Director; Chairman of the Board, President and
Chief Executive Officer
Stephen H. Leven.............................. 48 Senior Vice President
Keh-Shew Lu................................... 52 Senior Vice President
John C. Scarisbrick........................... 46 Senior Vice President
Richard J. Schaar............................. 54 Senior Vice President (President, Educational
and Productivity Solutions)
M. Samuel Self................................ 60 Senior Vice President, Controller and Chief
Accounting Officer
Elwin L. Skiles, Jr. ......................... 58 Senior Vice President
Richard K. Templeton.......................... 40 Executive Vice President (President,
Semiconductor)
Teresa L. West................................ 39 Senior Vice President
Delbert A. Whitaker........................... 56 Senior Vice President
Thomas Wroe................................... 49 Senior Vice President (President, Materials and
Controls)
</TABLE>

The term of office of the above listed officers is from the date of their
election until their successor shall have been elected and qualified, and the
most recent date of election of each of them was April 22, 1999. Messrs. Agnich,
Aylesworth, Engibous and Skiles have served as officers of Texas Instruments for
more than five years. Mr. Templeton has served as an officer of Texas
Instruments since 1996, and he has been an employee of Texas Instruments for
more than five years. Ms. West and Messrs. Leven, Lu, Scarisbrick, Schaar, Self,
Whitaker and Wroe have served as officers of Texas Instruments since March 19,
1998 and have been employees of Texas Instruments for more than five years.

EXECUTIVE COMPENSATION

Compensation Overview

Texas Instruments is committed to building shareholder value through
improved performance and growth. To achieve this objective, Texas Instruments
seeks to create an environment in which employees recognize that they are valued
as individuals and treated with respect, dignity and fairness.

Texas Instruments uses a merit-based system of compensation to encourage
individual employees to reach their productive and creative potential, and to
link individual financial goals to company

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<PAGE> 84

performance. Texas Instruments regularly compares its compensation system with
those of competitors and refines its system as necessary to encourage a
motivated and productive work force.

The following tables provide information regarding the compensation of
Texas Instruments' chief executive officer and each of the five other most
highly compensated executive officers.

Summary Compensation Table

The following table shows the compensation of Texas Instruments' chief
executive officer and each of the five other most highly compensated executive
officers for services in all capacities to Texas Instruments in 1998, 1997 and
1996.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
------------------------ ---------
ANNUAL COMPENSATION LONG-TERM
NAME AND --------------------------------------- RESTRICTED STOCK INCENTIVE
PRINCIPAL OTHER ANNUAL STOCK OPTIONS PLAN ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) (IN SHARES) PAYOUTS COMPENSATION(3)
--------- ---- -------- ---------- --------------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T.J. Engibous 1998 $677,540 $1,800,000 -- 0 400,000 0 $174,732
Chairman, 1997 $645,870 $1,500,000 -- 0 520,000 0 $ 98,604
President & CEO 1996 $509,640 $ 0 -- $875,000 240,000 0 $ 15,484
R.K. Templeton 1998 $407,540 $1,200,000 -- 0 180,000 0 $135,948
Executive Vice 1997 $358,770 $1,100,000 -- 0 280,000 0 $ 41,248
President 1996 $278,750 $ 0 -- 0 240,000 0 $ 3,200
R.J. Agnich 1998 $365,400 $ 500,000 -- 0 80,000 0 $ 73,830
Senior Vice 1997 $363,950 $ 600,000 -- 0 140,000 0 $ 47,954
President, 1996 $346,500 $ 0 -- 0 80,000 0 $ 19,040
Secretary & General
Counsel
W.A. Aylesworth 1998 $365,400 $ 500,000 -- 0 80,000 0 $ 73,783
Senior Vice 1997 $363,950 $ 600,000 -- 0 140,000 0 $ 47,888
President, 1996 $346,500 $ 0 -- 0 80,000 0 $ 20,516
Treasurer & Chief
Financial Officer
J.C. Scarisbrick(4) 1998 $325,396 $ 595,607 -- 0 80,000 0 $115,538
Senior Vice President
D.A. Whitaker(4) 1998 $332,080 $ 650,000 -- 0 80,000 0 $ 60,753
Senior Vice President
</TABLE>

- ---------------

(1) The dollar value of perquisites and other personal benefits for each of the
named executive officers was less than the established reporting thresholds.

(2) For purposes of the table, restricted stock units awarded under the Texas
Instruments Long-Term Incentive Plan are valued at market on the date of
award.

Payments relating to the restricted stock units awarded to Mr. Engibous in
1996 are based primarily on whether Texas Instruments meets specific goals
regarding return on net assets and revenue growth over a period of five
years (as determined in accordance with the terms of the award) and
generally are payable only if Mr. Engibous remains employed by Texas
Instruments for a period of ten years. As of December 31, 1998, the value
of the 80,000 unvested shares was $3,425,000. Dividend equivalent payments
are paid on restricted stock units at the same rate as dividends on Texas
Instruments' common stock.

(3) During 1998, Texas Instruments made payments in connection with split-dollar
life insurance policies in the following amounts: Mr. Engibous, $44,164; Mr.
Templeton, $10,994; Mr. Agnich, $14,051; and Mr. Aylesworth, $14,004. Also,
Texas Instruments made payments in connection with travel and accident
insurance policies in the amount of $200 for each of the executive officers
named in the summary compensation table.

78
<PAGE> 85

During 1998, Texas Instruments made matching contributions to 401(k)
accounts in the amount of $3,200 for Messrs. Engibous, Agnich, Aylesworth
and Whitaker and $6,400 for Mr. Templeton.

For 1998, cash payments and contributions (plus ERISA reductions for which
Texas Instruments will provide an offsetting supplemental benefit) under
the U.S. profit sharing plan were as follows: Mr. Engibous, $127,168; Mr.
Templeton, $88,040; Mr. Agnich, $56,379; Mr. Aylesworth, $56,379; and Mr.
Whitaker, $57,353. Also, Texas Instruments made a contribution of $56,897
under the U.K. profit sharing plan for Mr. Scarisbrick.

Texas Instruments made a contribution (plus an ERISA reduction for which
Texas Instruments will provide an offsetting supplemental benefit) in the
amount of $30,314 under the deferred contribution retirement plan for Mr.
Templeton.

The amount shown for Mr. Scarisbrick includes $22,857 for special
allowances and $35,684 of tax reimbursement payments relating to his
assignment outside the United States.

(4) Messrs. Scarisbrick and Whitaker became executive officers of Texas
Instruments in 1998.

Table of Option Grants in 1998

The following table shows stock options granted to the named executive
officers in 1998. Additionally, in accordance with the rules of the Securities
and Exchange Commission, the table shows the hypothetical gains or "option
spreads" that would exist for the respective options. These gains are based on
assumed rates of annual compound stock appreciation of 5% and 10% from the date
the options were granted over the full option term.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM (10 YEARS)
----------------------------------------------------
5% 10%
% OF TOTAL ------------------------ -------------------------
OPTIONS OPTIONS STOCK STOCK
GRANTED GRANTED TO EXERCISE EXPIR- PRICE PRICE
(IN SHARES) EMPLOYEES PRICE ATION (PER SHARE) (PER SHARE)
NAME (1) IN 1998 (PER SHARE) DATE (2) GAIN (2) GAIN
- ---- ----------- ---------- ----------- ------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T.J. Engibous........ 400,000 2.48% $23.11 1/14/08 $37.64 $5,813,111 $59.94 $14,731,933
R.K. Templeton....... 180,000 1.12% $23.11 1/14/08 $37.64 $2,615,900 $59.94 $ 6,629,370
R.J. Agnich.......... 80,000 0.50% $23.11 1/14/08 $37.64 $1,162,622 $59.94 $ 2,946,387
W.A. Aylesworth...... 80,000 0.50% $23.11 1/14/08 $37.64 $1,162,622 $59.94 $ 2,946,387
J.C. Scarisbrick..... 80,000 0.50% $23.11 1/14/08 $37.64 $1,162,622 $59.94 $ 2,946,387
D.A. Whitaker........ 80,000 0.50% $23.11 1/14/08 $37.64 $1,162,622 $59.94 $ 2,946,387
</TABLE>

- ---------------

(1) These nonqualified options become exercisable in four equal annual
installments beginning on January 14, 1999 and also may become fully
exercisable in the event of a change in control (as defined in the options)
of Texas Instruments. In some cases, the exercise price may be paid by
delivery of already-owned shares and tax withholding obligations related to
exercise may be paid in shares.
(2) The price per share of Texas Instruments common stock at the end of the
10-year term of the stock options granted at a 5% annual appreciation would
be $37.64, and at a 10% annual appreciation would be $59.94.

79
<PAGE> 86

Table of Option Exercises in 1998 and Year-End Option Values

The following table lists the number of shares acquired and the value
realized as the result of option exercises in 1998 by the named executive
officers. It also includes the number and value of the exercisable and
unexercisable options as of December 31, 1998. The table contains values for
"in-the-money" options, meaning a positive spread between the year-end share
price of $42.81 and the exercise price.

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1998 AT DECEMBER 31, 1998
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T.J. Engibous........ -- -- 658,000 850,000 $20,909,075 $19,873,575
R.K. Templeton....... -- -- 682,000 450,000 $22,339,765 $10,876,625
R.J. Agnich.......... -- -- 132,000 205,000 $ 4,041,005 $ 4,921,238
W.A. Aylesworth...... 31,000 $ 639,676 280,000 205,000 $ 9,061,535 $ 4,921,238
J.C. Scarisbrick..... 123,400 $2,247,647 82,000 205,000 $ 2,433,995 $ 5,013,663
D.A. Whitaker........ 168,000 $4,572,810 50,000 150,000 $ 1,458,025 $ 3,442,875
</TABLE>

U.S. Pension Plan Table

The following table shows the approximate annual benefits relating to Texas
Instruments' U.S. pension plan that would be payable as of December 31, 1998 to
employees in higher salary classifications for the average credited earnings and
years of credited service indicated. It assumes retirement at age 65. Benefits
are based on eligible earnings. Eligible earnings include salary and bonus as
shown in the summary compensation table. Other elements of compensation shown in
the summary compensation table or referred to in the footnotes to that table are
not included in eligible earnings.

In 1997, Texas Instruments' U.S. employees were given the option of
continuing to participate in the pension plan or to participate in a new defined
contribution retirement plan. Mr. Templeton chose to participate in the new
plan. Accordingly, his benefits under the pension plan (discussed in footnote 1)
were frozen as of December 31, 1997. Contributions to the new plan for Mr.
Templeton's benefit are shown in the summary compensation table.

Mr. Scarisbrick participated in the Texas Instruments U.K. pension plan
which is described below under "-- U.K. Pension Plan Table."

<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS UNDER PENSION PLAN FOR
AVERAGE SPECIFIED YEARS OF CREDITED SERVICE(2)(3)
CREDITED ----------------------------------------------------------------------------
EARNINGS(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS 45 YEARS
- ----------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 500,000............. $108,998 $145,331 $181,664 $217,996 $254,329 $291,829 $ 329,329
$ 600,000............. $131,498 $175,331 $219,164 $262,996 $306,829 $351,829 $ 396,829
$ 700,000............. $153,998 $205,331 $256,664 $307,996 $359,329 $411,829 $ 464,329
$ 800,000............. $176,498 $235,331 $294,164 $352,996 $411,829 $471,829 $ 531,829
$ 900,000............. $198,998 $265,331 $331,664 $397,996 $464,329 $531,829 $ 599,329
$1,000,000............ $221,498 $295,331 $369,164 $442,996 $516,829 $591,829 $ 666,829
$1,100,000............ $243,998 $325,331 $406,664 $487,996 $569,329 $651,829 $ 734,329
$1,200,000............ $266,498 $355,331 $444,164 $532,996 $621,829 $711,829 $ 801,829
$1,300,000............ $288,998 $385,331 $481,664 $577,996 $674,329 $771,829 $ 869,329
$1,400,000............ $311,498 $415,331 $519,164 $622,996 $726,829 $831,829 $ 936,829
$1,500,000............ $333,998 $445,331 $556,664 $667,996 $779,329 $891,829 $1,004,329
</TABLE>

- ---------------

(1) The average credited earnings is the average of the five consecutive years
of highest earnings. At December 31, 1998, the named executive officers were
credited with the following years of credited service and had the following
average credited earnings: Mr. Engibous, 21 years, $1,180,881; Mr. Agnich,
26 years, $763,879; Mr. Aylesworth, 32 years, $703,991; and Mr. Whitaker, 30
years,

80
<PAGE> 87

$626,141. Mr. Templeton had 16 years of credited service and $536,761 in
average credited earnings as of December 31, 1997.

(2) If the amount otherwise payable under the pension plan should be restricted
by the applicable provisions of ERISA, the amount in excess of ERISA's
restrictions will be paid by Texas Instruments.

(3) The benefits under the plan are computed as a single life annuity beginning
at age 65.

The amounts shown in the table reflect the offset provided in the pension
plan under the pension formula adopted July 1, 1989 to comply with the
social security integration requirements. The integration offset is $3,502
for 15 years of credited service, $4,669 for 20 years of credited service,
$5,837 for 25 years of credited service, $7,004 for 30 years of credited
service, $8,171 for 35 years of credited service, $8,171 for 40 years of
credited service and $8,171 for 45 years of credited service.

U.K. Pension Plan Table

The following table shows the approximate annual benefits relating to the
Texas Instruments U.K. pension plan that would be payable as of December 31,
1998 to employees in higher salary classifications for the average credited
earnings and years of service indicated. It assumes retirement at age 65.
Benefits are based on eligible earnings. Eligible earnings include salary and
bonus as shown in the summary compensation table. Other elements of compensation
shown in the summary compensation table or referred to in the footnotes to that
table are not included in eligible earnings.

<TABLE>
<CAPTION>
AVERAGE ESTIMATED ANNUAL BENEFITS UNDER PENSION PLAN FOR SPECIFIED YEARS OF CREDITED SERVICE(2)
CREDITED ----------------------------------------------------------------------------------------
EARNINGS(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS 45 YEARS
- ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$300,000............. $ 78,750 $105,000 $131,250 $157,500 $183,750 $200,000 $200,000
$400,000............. $105,000 $140,000 $175,000 $210,000 $245,000 $266,667 $266,667
$500,000............. $131,250 $175,000 $218,750 $262,500 $306,250 $333,333 $333,333
</TABLE>

- ---------------

(1) At December 31, 1998, Mr. Scarisbrick was credited with 22 years of service
and had $322,682 of average credited earnings for purposes of the U.K.
pension plan.
(2) The benefits under the plan are computed as a joint life annuity beginning
at age 65.

81
<PAGE> 88

TEXAS INSTRUMENTS SHARE OWNERSHIP OF CERTAIN PERSONS

The following table shows (a) the only persons that have reported
beneficial ownership of more than 5% of the common stock of Texas Instruments,
and (b) the ownership of Texas Instruments common stock by the named executive
officers, and all executive officers and directors as a group. Persons generally
"beneficially own" shares if they have either the right to vote those shares or
dispose of them. More than one person may be considered to beneficially own the
same shares. All executive officers have the same address: 8505 Forest Lane,
P.O. Box 660199, Dallas, Texas 75266.

<TABLE>
<CAPTION>
SHARES OWNED AT PERCENT OF
NAME AND ADDRESS DECEMBER 31, 1998 CLASS
- ---------------- ----------------- ----------
<S> <C> <C>
FMR Corp.................................................... 83,359,254(1) 10.689%
82 Devonshire Street
Boston, MA 02109
Capital Research and Management Company..................... 40,668,520(2) 5.2%
333 South Hope Street
Los Angeles, CA 90071
Thomas J. Engibous.......................................... * *
Richard K. Templeton........................................ * *
Richard J. Agnich........................................... * *
William A. Aylesworth....................................... * *
John C. Scarisbrick......................................... * *
Delbert A. Whitaker......................................... * *
All executive officers and directors as a group............. * *
</TABLE>

- ---------------

* Less than 1%.

(1) Texas Instruments understands that, as of December 31, 1998, (a) FMR Corp.
and its chairman, Edward C. Johnson 3d, had sole dispositive power with
respect to all of the above shares and FMR Corp. had sole voting power with
respect to 6,663,934 of the above shares, and (b) the above shares include
75,565,900 shares beneficially owned by Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR Corp., as a result of acting as
investment advisor to several investment companies, and as a result of
acting as a sub-advisor to Fidelity American Special Situations Trust.
(2) Texas Instruments understands that as of December 31, 1998, Capital Research
and Management Company had sole dispositive power with respect to all of the
above shares.

As of December 31, 1998, the Texas Instruments Employees Master Profit
Sharing Trust held 44,177,498 shares (5.7%) of Texas Instruments common stock.
Pursuant to the terms of the trust, participants have the power to determine the
voting and, to the extent permitted, disposition of shares held by the trust.

The merger will not have a significant impact on the stock ownership and
rights of any person listed in the table.

82
<PAGE> 89

DESCRIPTION OF CAPITAL STOCK OF TEXAS INSTRUMENTS

GENERAL

The authorized capital stock of Texas Instruments consists of 1,200,000,000
shares of common stock, $1.00 par value per share, and 10,000,000 shares of
preferred stock, $25.00 par value, of which shares have been designated Series B
Participating Cumulative Preferred Stock. As of September 30, 1999, there were
issued 793,506,626 shares of common stock, of which 1,095,147 were treasury
shares and 792,411,479 were outstanding, and Texas Instruments had no preferred
stock issued or outstanding. The following summary of the terms of Texas
Instruments' capital stock does not purport to be complete and is qualified in
its entirety by reference to the applicable provisions of Delaware law and Texas
Instruments' restated certificate of incorporation, as amended.

THE COMMON STOCK

The holders of shares of Texas Instruments common stock, subject to the
preferential rights of the holders of any shares of preferred stock of Texas
Instruments, are entitled to dividends when and as declared by the Texas
Instruments board of directors. The holders of the Texas Instruments common
stock have one vote per share on all matters submitted to a vote of the
stockholders, and the right to share pro rata in the net assets of Texas
Instruments in liquidation after payment of any amounts due to creditors and in
respect of any preferred stock of Texas Instruments. Holders of shares of Texas
Instruments common stock are not entitled as a matter of right to any preemptive
or subscription rights and are not entitled to cumulative voting for directors.
All outstanding shares of Texas Instruments common stock are, and the shares of
Texas Instruments common stock issued upon any conversion or exchange of any
debt securities or preferred stock providing for such conversion or exchange
will be, fully paid and nonassessable.

The bylaws of Texas Instruments provide that the annual meeting of
stockholders shall be held on the third Thursday in April each year or on such
other date as may be fixed by the Texas Instruments board of directors and as
stated in a written notice, which must be mailed or delivered to each
stockholder at least 10 days prior to any stockholder meeting.

Texas Instruments is authorized to issue additional shares of common stock
without further stockholder approval, except as may be required by applicable
law or stock exchange regulations.

The transfer agent and registrar for Texas Instruments' common stock is
Harris Trust and Savings Bank, 311 West Monroe Street, Chicago, Illinois 60690.

THE PREFERRED STOCK

Under its restated certificate of incorporation, Texas Instruments is
authorized to issue up to 10,000,000 shares of preferred stock, in one or more
series, with such designations and such relative voting, dividend, liquidation,
conversion and other rights, preferences and limitations as are stated in the
restated certificate of incorporation, or any certificate of designation
establishing such series adopted by the Texas Instruments board of directors.
The 10,000,000 authorized but unissued shares of preferred stock may be issued
pursuant to resolution of the Texas Instruments board of directors without the
vote of the holders of any capital stock of Texas Instruments.

THE RIGHTS PLAN

On June 18, 1998, the Texas Instruments board of directors declared a
dividend of one preferred stock purchase right (a "Right") for each outstanding
share of Texas Instruments common stock. As a result of the two-for-one stock
split effective August 16, 1999, each share of Texas Instruments common stock is
now associated with one-half of a Right. The dividend was paid on June 30, 1998
(the "Record Date") to holders of record of Texas Instruments common stock as of
the close of business on that date. The terms and conditions of the Rights are
set forth in a Rights Agreement dated as of June 19, 1998

83
<PAGE> 90

between Texas Instruments and Harris Trust and Savings Bank, as Rights Agent (as
amended by Amendment No. 1 to the Rights Agreement, the "Rights Agreement"). The
Rights will expire on June 18, 2008, unless earlier exchanged or redeemed.

Prior to the Distribution Date (as defined below), the Rights will be
evidenced by the certificates for and will be transferred with the Texas
Instruments common stock, and the registered holders of the Texas Instruments
common stock will be deemed to be the registered holders of the Rights. After
the Distribution Date, the Rights Agent will mail separate certificates
evidencing the Rights to each record holder of the common stock as of the close
of business on the Distribution Date, and thereafter the Rights will be
transferable separately from the common stock. The "Distribution Date" generally
means the earlier of (1) the close of business on the 10th day after the date of
the first public announcement that a person, other than Texas Instruments or any
of its subsidiaries or any employee benefit plan of Texas Instruments or any
such subsidiary, has acquired beneficial ownership of 20% or more of the
outstanding shares of common stock (an "Acquiring Person") and (2) the close of
business on the 10th business day, or such later day as may be designated by the
Texas Instruments board of directors before any person has become an Acquiring
Person, after the date of the commencement of a tender or exchange offer by any
person which would, if consummated, result in such person becoming an Acquiring
Person.

Prior to the Distribution Date, the Rights will not be exercisable to
purchase Series B Participating Cumulative Preferred Stock (the "Series B
Preferred Stock"). After the Distribution Date, each Right will be exercisable
to purchase, for $200 (the "Purchase Price"), one one-thousandth of a share of
Series B Preferred Stock.

At any time after any person has become an Acquiring Person, but before the
occurrence of any of the events described in the second succeeding sentence,
each Right, other than Rights beneficially owned by the Acquiring Person and
certain affiliated persons, will entitle the holder to purchase, for the
Purchase Price, a number of shares of Texas Instruments common stock having a
market value of twice the Purchase Price. At any time after any person has
become an Acquiring Person, but before any person becomes the beneficial owner
of 50% or more of the outstanding shares of Texas Instruments common stock or
the occurrence of any of the events described in the next sentence, the Texas
Instruments board of directors may exchange all or part of the Rights, other
than Rights beneficially owned by an Acquiring Person and certain affiliated
persons, for shares of Texas Instruments common stock at an exchange ratio of
one share of Texas Instruments common stock per Right. If, after any person has
become an Acquiring Person, (1) Texas Instruments is involved in a merger or
other business combination in which Texas Instruments is not the surviving
corporation or its common stock is exchanged for other securities or assets or
(2) Texas Instruments and/or one or more of its subsidiaries sell or otherwise
transfer assets or earning power aggregating more than 50% of the assets or
earning power of Texas Instruments and its subsidiaries, taken as a whole, then
each Right, other than Rights beneficially owned by an Acquiring Person and
certain affiliated persons, will entitle the holder to purchase, for the
Purchase Price, a number of shares of common stock of the other party to such
business combination or sale, or in certain circumstances, an affiliate, having
a market value of twice the Purchase Price.

The Texas Instruments board of directors may redeem all of the Rights at a
price of $0.01 per Right at any time before any person has become an Acquiring
Person. For so long as the Rights are redeemable, the Rights Agreement may be
amended in any respect. At any time when the Rights are no longer redeemable,
the Rights Agreement may be amended in any respect that does not adversely
affect Rights holders, other than any Acquiring Person and certain affiliated
persons, cause the Rights Agreement to become amendable other than as described
in this sentence or cause the Rights again to become redeemable.

Rights holders have no rights as holders of Texas Instruments common stock,
including the right to vote and to receive dividends.

The Rights Agreement includes antidilution provisions designed to prevent
efforts to diminish the effectiveness of the Rights.

84
<PAGE> 91

Each outstanding share of Texas Instruments common stock on the Record Date
received one Right. Shares of common stock issued after the Record Date and
prior to the Distribution Date will be issued with a Right attached so that all
shares of Texas Instruments common stock outstanding prior to the Distribution
Date will have Rights attached. As a result of the two-for-one stock split
effective August 16, 1999, each share of Texas Instruments common stock is now
associated with one-half of a Right.

The Rights may have antitakeover effects. The Rights may cause substantial
dilution to a person that attempts to acquire Texas Instruments without a
condition to such an offer that a substantial number of the Rights be acquired
or that the Rights be redeemed or declared invalid. The Rights should not
interfere with any merger or other business combination approved by the Texas
Instruments board of directors since the Rights may be redeemed by Texas
Instruments as described above.

The foregoing description of the Rights Agreement is qualified in its
entirety by reference to the full text of the Rights Agreement, which is
included as an exhibit to documents filed with the Securities and Exchange
Commission and incorporated by reference.

LEGAL MATTERS

The validity of the shares of Texas Instruments common stock to be issued
in the merger and certain United States federal income tax consequences of the
merger will be passed upon for Texas Instruments by Weil, Gotshal & Manges LLP,
Dallas, Texas and New York, New York.

Certain United States federal income tax consequences of the merger will be
passed upon for Power Trends by Johnson and Colmar, Chicago, Illinois.

INDEPENDENT AUDITORS

The consolidated financial statements of Texas Instruments as of December
31, 1998 and 1997 and for each of the years in the three-year period ended
December 31, 1998 included in this proxy statement/ prospectus have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein. The financial statements of Power Trends, Inc. as of
June 30, 1999 and 1998 and for each of the years in the three-year period ended
June 30, 1999 included in this proxy statement/ prospectus have been audited by
Arthur Andersen LLP, independent certified public accountants, as set forth in
their report thereon included therein and incorporated herein.

85
<PAGE> 92

INDEX TO FINANCIAL STATEMENTS

TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements -- Income -- for the years
ended December 31, 1998, 1997 and 1996.................... F-3
Consolidated Financial Statements -- Balance Sheet -- as of
December 31, 1998 and 1997................................ F-4
Consolidated Financial Statements -- Cash Flows -- for the
years ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Financial Statements -- Stockholders'
Equity -- for the years ended December 31, 1998, 1997 and
1996...................................................... F-6
Notes to Financial Statements............................... F-7
Consolidated Quarterly Financial Data -- for the years 1998
and 1997 (unaudited)...................................... F-31
Consolidated Financial Statements -- Income -- for the six
months ended June 30, 1999 and 1998 (unaudited)........... F-33
Consolidated Financial Statements -- Balance Sheet -- as of
June 30, 1999 (unaudited) and December 31, 1998........... F-34
Notes to Financial Statements (unaudited)................... F-35
</TABLE>

POWER TRENDS, INC.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-40
Balance Sheets as of June 30, 1999 and 1998................. F-41
Statements of Income for the years ended June 30, 1999, 1998
and 1997.................................................. F-42
Statements of Changes in Convertible Redeemable Preferred
Stock and Common Stockholders' Deficit for the years ended
June 30, 1999, 1998 and 1997.............................. F-43
Statements of Cash Flows for the years ended June 30, 1999,
1998 and 1997............................................. F-44
Notes to the Financial Statements........................... F-45
</TABLE>

F-1
<PAGE> 93

REPORT OF ERNST & YOUNG LLP,

INDEPENDENT AUDITORS

The Board of Directors
Texas Instruments Incorporated

We have audited the accompanying consolidated balance sheets of Texas
Instruments Incorporated and subsidiaries (the Company) at December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas
Instruments Incorporated and subsidiaries at December 31, 1998 and 1997, and the
results of its operations and cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Dallas, Texas
January 19, 1999

F-2
<PAGE> 94

CONSOLIDATED FINANCIAL STATEMENTS

INCOME

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS,
EXCEPT PER-SHARE AMOUNTS
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net Revenues................................................ $8,460 $9,750 $9,940
------ ------ ------
Operating costs and expenses:
Cost of revenues.......................................... 5,394 6,067 7,146
Research and development.................................. 1,206 1,536 1,181
Marketing, general and administrative..................... 1,461 1,532 1,639
------ ------ ------
Total............................................. 8,061 9,135 9,966
------ ------ ------
Profit (loss) from operations............................... 399 615 (26)
Other income (expense) net.................................. 293 192 76
Interest on loans........................................... 75 94 73
------ ------ ------
Income (loss) from continuing operations before provision
for income taxes and extraordinary item................... 617 713 (23)
Provision for income taxes.................................. 210 411 23
------ ------ ------
Income (loss) from continuing operations before
extraordinary item........................................ 407 302 (46)
Discontinued operations:
Income from operations.................................... -- 52 109
Gain on sale.............................................. -- 1,473 --
------ ------ ------
Income before extraordinary item............................ 407 1,827 63
Extraordinary item: extinguishment of debt.................. -- (22) --
------ ------ ------
Net income.................................................. $ 407 $1,805 $ 63
====== ====== ======
Diluted earnings (loss) per common share:
Continuing operations before extraordinary item........... $ .51 $ .38 $ (.06)
Discontinued operations:
Income from operations................................. -- .07 .14
Gain on sale........................................... -- 1.85 --
Extraordinary item........................................ -- (.03) --
------ ------ ------
Net income.................................................. $ .51 $ 2.27 $ .08
====== ====== ======
Basic earnings (loss) per common share:
Continuing operations before extraordinary item........... $ .52 $ .39 $ (.06)
Discontinued operations:
Income from operations................................. -- .07 .14
Gain on sale........................................... -- 1.91 --
Extraordinary item........................................ -- (.03) --
------ ------ ------
Net income.................................................. $ .52 $ 2.34 $ .08
====== ====== ======
</TABLE>

See accompanying notes.

F-3
<PAGE> 95

CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS,
EXCEPT PER-SHARE
AMOUNTS
DECEMBER 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 540 $ 1,015
Short-term investments.................................... 1,709 2,005
Accounts receivable, less allowance for losses of $97
million in 1998 and $73 million in 1997................ 1,343 1,705
Inventories............................................... 596 742
Prepaid expenses.......................................... 75 59
Deferred income taxes..................................... 583 577
------- -------
Total current assets.............................. 4,846 6,103
------- -------
Property, plant and equipment at cost....................... 6,379 7,414
Less accumulated depreciation............................. (3,006) (3,234)
------- -------
Property, plant and equipment (net)............... 3,373 4,180
------- -------
Investments................................................. 2,564 69
Deferred income taxes....................................... 23 134
Other assets................................................ 444 363
------- -------
Total assets...................................... $11,250 $10,849
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable and current portion long-term debt.......... $ 267 $ 71
Accounts payable and accrued expenses..................... 1,582 2,082
Income taxes payable...................................... 193 154
Accrued retirement and profit sharing contributions....... 154 189
------- -------
Total current liabilities......................... 2,196 2,496
------- -------
Long-term debt.............................................. 1,027 1,286
Accrued retirement costs.................................... 895 731
Deferred income taxes....................................... 381 288
Deferred credits and other liabilities...................... 224 134
Stockholders' equity:
Preferred stock, $25 par value. Authorized -- 10,000,000
shares
Participating cumulative preferred. None issued........ -- --
Common stock, $1 par value. Authorized -- 1,200,000,000
shares
Shares issued: 1998 -- 392,395,997;
1997 -- 390,359,317................................... 392 390
Paid-in capital........................................... 1,178 1,183
Retained earnings......................................... 4,795 4,488
Less treasury common stock at cost
Shares: 1998 -- 1,716,038; 1997 -- 860,765............. (134) (94)
Accumulated other comprehensive income.................... 296 (53)
------- -------
Total stockholders' equity........................ 6,527 5,914
------- -------
Total liabilities and stockholders' equity........ $11,250 $10,849
======= =======
</TABLE>

See accompanying notes.

F-4
<PAGE> 96

CONSOLIDATED FINANCIAL STATEMENTS

CASH FLOWS

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS,
EXCEPT PER-SHARE AMOUNTS
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income (loss) from continuing operations before
extraordinary item..................................... $ 407 $ 302 $ (46)
Depreciation............................................ 1,169 1,109 904
Acquired in-process research and development............ 25 461 192
Deferred income taxes................................... (50) 9 (51)
Net currency exchange (gains) losses.................... (4) 6 7
(Increase) decrease in working capital (excluding cash
and cash equivalents, short-term investments,
deferred income taxes, and loans payable and current
portion long-term debt):
Accounts receivable................................ 289 (39) 250
Inventories........................................ 74 (34) 245
Prepaid expenses................................... (17) (19) 9
Accounts payable and accrued expenses.............. (427) (36) (404)
Income taxes payable............................... 24 (26) (3)
Accrued retirement and profit sharing
contributions.................................... (24) 128 (283)
Extraordinary item: extinguishment of debt.............. -- (22) --
Increase in noncurrent accrued retirement costs......... 42 7 79
Other................................................... (257) (3) (101)
------- ------- -------
Net cash provided by operating activities................. 1,251 1,843 798
Cash flows from investing activities:
Additions to property, plant and equipment.............. (1,031) (1,238) (2,063)
Purchases of short-term investments..................... (2,244) (2,457) (27)
Sales and maturities of short-term investments.......... 2,537 479 202
Acquisition of businesses, net of cash acquired......... (152) (304) (313)
Loans and payments made in connection with sale of
memory business........................................ (680) -- --
Proceeds from sale of other businesses.................. 100 177 150
Proceeds from sale of discontinued operations less
income taxes and transaction costs..................... -- 2,138 --
------- ------- -------
Net cash used in investing activities..................... (1,470) (1,205) (2,051)
Cash flows from financing activities:
Additions to loans payable.............................. -- -- 288
Payments on loans payable............................... (4) (314) (2)
Additions to long-term debt............................. -- 28 871
Payments on long-term debt.............................. (68) (256) (199)
Dividends paid on common stock.......................... (133) (131) (129)
Sales and other common stock transactions............... 196 140 35
Common stock repurchase program......................... (253) (86) --
Other................................................... -- (2) (1)
------- ------- -------
Net cash provided by (used in) financing activities....... (262) (621) 863
Effect of exchange rate changes on cash................... 6 (23) (16)
------- ------- -------
Cash used in continuing operations........................ (475) (6) (406)
------- ------- -------
Discontinued operations:
Operating activities...................................... -- 73 86
Investing activities...................................... -- (16) (80)
Financing activities...................................... -- -- --
------- ------- -------
Cash provided by discontinued operations.................. -- 57 6
------- ------- -------
Net increase (decrease) in cash and cash equivalents...... (475) 51 (400)
Cash and cash equivalents at beginning of year............ 1,015 964 1,364
------- ------- -------
Cash and cash equivalents at end of year.................. $ 540 $ 1,015 $ 964
======= ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 97

CONSOLIDATED FINANCIAL STATEMENTS

STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS
ACCUMULATED
TREASURY OTHER
COMMON PAID-IN RETAINED COMMON COMPREHENSIVE
STOCK CAPITAL EARNINGS STOCK INCOME*
------ ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.................. $190 $1,081 $2,881 $ (12) $ (45)
---- ------ ------ ----- -----
1996
Net income................................ -- -- 63 -- --
Dividends declared on common stock ($.17
per share)............................. -- -- (130) -- --
Common stock issued on exercise of stock
options................................ -- 28 -- -- --
Other stock transactions, net............. -- 7 -- -- --
Pension liability adjustment.............. -- -- -- -- 6
Equity and cash investments adjustment.... -- -- -- -- 28
---- ------ ------ ----- -----
Balance, December 31, 1996.................. 190 1,116 2,814 (12) (11)
---- ------ ------ ----- -----
1997
Net income................................ -- -- 1,805 -- --
Dividends declared on common stock ($.17
per share)............................. -- -- (131) -- --
Two-for-one common stock split............ 195 (195) -- -- --
Common stock issued:
On exercise of stock options........... 3 95 -- 5 --
On conversion of debentures............ 2 101 -- -- --
Stock repurchase program.................. -- -- -- (86) --
Other stock transactions, net............. -- 66 -- (1) --
Pension liability adjustment.............. -- -- -- -- (24)
Equity and cash investments adjustment.... -- -- -- -- (18)
---- ------ ------ ----- -----
Balance, December 31, 1997.................. 390 1,183 4,488 (94) (53)
---- ------ ------ ----- -----
1998
Net income................................ -- -- 407 -- --
Dividends declared on common stock ($.128
per share)............................. -- -- (100) -- --
Common stock issued on exercise of stock
options................................ 2 (111) -- 254 --
Stock repurchase program.................. -- -- -- (294) --
Other stock transactions, net............. -- 106 -- -- --
Pension liability adjustment.............. -- -- -- -- (117)
Equity, debt and cash investments
adjustment............................. -- -- -- -- 466
---- ------ ------ ----- -----
Balance, December 31, 1998.................. $392 $1,178 $4,795 $(134) $ 296
==== ====== ====== ===== =====
</TABLE>

Comprehensive income, i.e., net income plus other comprehensive income,
totaled $756 million in 1998, $1,763 million in 1997 and $97 million in 1996.

See accompanying notes.

F-6
<PAGE> 98

NOTES TO FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND PRACTICES

Texas Instruments Incorporated (referred to as, the "company," and/or "TI")
adopted SFAS No. 130 in the first quarter of 1998. It required disclosure of
comprehensive income, i.e., net income plus direct adjustments to stockholders'
equity such as equity, debt and cash investment adjustments and pension
liability adjustments. Also in 1998, the company adopted SFAS No. 132, which
mandated changes in disclosures for pension and retiree health care plans. In
1997, the company adopted SFAS No. 128, which required disclosure of two new
earnings per share amounts (diluted and basic) and elimination of prior earnings
per share amounts. Also in 1997, the company adopted SFAS No. 131, which
required a new basis of determining reportable business segments, i.e., the
management approach. Disclosures under these 1997 and 1998 standards were
provided on a retroactive basis. None affected reported net income.

Accounting standard SFAS No. 133 was issued in 1998 and is effective in
2000. It requires that all derivatives be marked-to-market on an ongoing basis.
This applies whether the derivatives are stand-alone instruments, such as
forward currency exchange contracts and interest rate swaps, or embedded
derivatives, such as call options contained in convertible debt investments.
Along with the derivatives, the underlying hedged items are also to be
marked-to-market on an ongoing basis. These market value adjustments are to be
included either in the income statement or stockholders' equity, depending on
the nature of the transaction. The company expects to adopt the standard in the
first quarter of 2000 on a cumulative basis. Based on analysis to date, the
company expects the most significant impact of this standard will be the
cumulative, as well as ongoing mark-to-market, adjustment through the income
statement of the embedded call option on Micron Technology, Inc. (Micron) common
shares contained in the convertible note received from Micron in connection with
TI's 1998 sale of its memory business. The value of this option can be volatile
given its sensitivity to changes in the value of Micron common shares. For
example, at September 30, 1998, the estimated value of the option was $82
million; at December 31, 1998, it was $192 million. Under SFAS No. 133, this
change in value of $110 million would be included in the income statement. Under
current accounting principles, the change in value of the Micron convertible
note, including the embedded call, is an adjustment to stockholders' equity.

Accounting standard SOP 98-1 was issued in 1998 and is effective in 1999.
It requires capitalization of the development costs of software to be used
internally, e.g., for manufacturing or administrative processes. The company,
which currently capitalizes significant development costs for internal-use
software, expects to adopt the standard in the first quarter of 1999 for
developmental costs incurred in that quarter and thereafter. The effect is not
expected to be material. Accounting standard SOP 98-5 was issued in 1998 and is
effective in 1999. It requires expensing, rather than capitalizing, the cost of
start-up activities. The company currently expenses such amounts as incurred and
therefore expects no material effect from adoption of this standard.

The consolidated financial statements include the accounts of all
subsidiaries. The preparation of financial statements requires the use of
estimates from which final results may vary. Intercompany balances and
transactions have been eliminated. Certain amounts in prior years' financial
statements and related notes have been reclassified to conform to the 1998
presentation. The U.S. dollar is the functional currency for financial
reporting. With regard to accounts recorded in currencies other than U.S.
dollars, current assets (except inventories), deferred income taxes, other
assets, current liabilities and long-term liabilities are remeasured at exchange
rates in effect at year-end. Inventories, property, plant and equipment and
depreciation thereon are remeasured at historic exchange rates. Revenue and
expense accounts other than depreciation for each month are remeasured at the
appropriate month-end rate of exchange. Net currency exchange gains and losses
from remeasurement and forward currency exchange contracts to hedge net balance
sheet exposures are charged or credited on a current basis to other income
(expense) net. Gains and losses from forward currency exchange contracts to
hedge specific transactions are deferred and included in the measurement of the
related transactions. Gains and losses from interest rate swaps are included on
the accrual basis in interest expense. Gains and losses from terminated forward

F-7
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

currency exchange contracts and interest rate swaps are deferred and recognized
consistent with the terms of the underlying transaction.

As discussed in the Divestitures note, the consolidated financial
statements include the effect of two significant divestitures: the sale of the
company's memory business and related joint venture interests to Micron in
September 1998, which was accounted for as a sale of a business, and the sale of
the defense business to Raytheon Company in July 1997, which was accounted for
as a discontinued operation.

The description "accounted for as a sale of a business" means the sale of
TI's memory business, which was a portion of the company's Semiconductor
segment, was not accounted for as a discontinued operation under APB No. 30, but
as a part of continuing operations, as discussed in paragraph 13 of that
opinion.

The description "accounted for as a discontinued operation" means the sale
of TI's Defense Systems and Electronics segment was accounted for under APB No.
30, paragraph 8, as the disposal of a segment of a business. Accordingly, the
operating results and gain on the sale of this business were presented in TI's
financial statements as discontinued operations, separate from TI's continuing
operations.

Inventories are stated at the lower of cost or estimated realizable value.
Cost is generally computed on a currently adjusted standard (which approximates
current average costs) or average basis.

Revenues are generally recognized as products are shipped. Royalty revenue
is recognized by the company upon fulfillment of its contractual obligations and
determination of a fixed royalty amount or, in the case of ongoing royalties,
upon sale by the licensee of royalty-bearing products, as estimated by the
company.

Depreciation is computed by either the declining-balance method (primarily
150 percent declining method) or the sum-of-the-years-digits method. Fully
depreciated assets are written off against accumulated depreciation. Advertising
costs are expensed as incurred. Advertising expense was $100 million in 1998,
$128 million in 1997 and $124 million in 1996.

Share amounts have been retroactively adjusted for the two-for-one stock
split in August 1999. Computation of earnings per common share (EPS) amounts for
income (loss) from continuing operations before extraordinary item is as follows
(millions, except per-share amounts):

<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ---------------------
INCOME SHARES EPS INCOME SHARES EPS LOSS SHARES EPS
------ ------ ---- ------ ------ ---- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS........................... $407 781.0 $.52 $302 770.3 $.39 $(46) 758.8 $(.06)
Dilutives:
Stock options/compensation
plans.......................... -- 20.9 -- 18.6 -- --
Convertible debentures............ -- -- -- 6.6 -- --
---- ----- ---- ---- ----- ---- ---- ----- -----
Diluted EPS......................... $407 801.9 $.51 $302 795.5 $.38 $(46) 758.8 $(.06)
==== ===== ==== ==== ===== ==== ==== ===== =====
</TABLE>

The EPS computation for 1996 excludes 9.6 million shares for stock
options/compensation plans and 10.0 million shares for convertible debentures
because their effect would have been antidilutive.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Debt securities with original maturities within three months are considered
cash equivalents. Debt securities with original maturities beyond three months
have remaining maturities within 13 months and are considered short-term
investments. These cash equivalent and short-term investment debt securities are
available for sale and stated at fair value, which approximates their specific
amortized cost. As of December 31, 1998, these debt securities consisted
primarily of the following types: corporate ($1,092 million) and asset-backed
commercial paper ($679 million). At December 31, 1997, these debt

F-8
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

securities consisted primarily of the following types: corporate ($1,943
million) and asset-backed commercial paper ($623 million). Gross realized and
unrealized gains and losses for each of these security types were immaterial in
1998, 1997 and 1996. Proceeds from sales of these cash equivalent and short-
term investment debt securities in 1998, 1997 and 1996 were $647 million, $859
million and $10 million.

INVENTORIES

<TABLE>
<CAPTION>
MILLIONS OF
DOLLARS
1998 1997
---- ----
<S> <C> <C>
Raw materials and purchased parts........................... $ 77 $105
Work in process............................................. 354 364
Finished goods.............................................. 165 273
---- ----
Inventories................................................. $596 $742
==== ====
</TABLE>

Prior to the sale of its memory business to Micron in 1998, TI participated
in DRAM manufacturing joint ventures. TI held minority interests in, and had
long-term inventory purchase commitments with, each joint venture. Under the
agreements, TI purchased the output of the ventures at prices based upon
percentage discounts from TI's average selling prices.

Inventory purchases from the ventures aggregated $416 million in 1998, $977
million in 1997 and $1,176 million in 1996. Receivables from and payables to the
ventures were $135 million and $69 million at December 31, 1997. TI amortized
its cost of the ventures over the expected initial output period of three to
five years, and recognized its share of any cumulative venture net losses in
excess of amortization. The related expense charged to operations was $40
million in 1998, $88 million in 1997 and $33 million in 1996.

PROPERTY, PLANT AND EQUIPMENT AT COST

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
DEPRECIABLE LIVES 1998 1997
----------------- -------- --------
<S> <C> <C> <C>
Land........................................................ $ 88 $ 94
Buildings and improvements.................................. 5-40 years 2,297 2,583
Machinery and equipment..................................... 3-10 years 3,994 4,737
------ ------
Total............................................. $6,379 $7,414
====== ======
</TABLE>

Authorizations for property, plant and equipment expenditures in future
years were approximately $541 million at December 31, 1998, and $1105 million at
December 31, 1997.

INVESTMENTS

At year-end 1998, equity investments primarily consisted of 28,933,092
Micron common shares, along with several other publicly traded investments. Debt
investments consisted of 6.5% Micron convertible and subordinated notes. The
convertible note (convertible into 12,333,358 Micron common shares at $60 per
share) and the subordinated note have face amounts of $740 million and $210
million. The notes, which mature in 2005, have a weighted-average imputed
interest rate of 8.7%. The Micron securities were received in 1998 in connection
with TI's sale of its memory business.

TI Ventures is an externally managed venture fund which invests in the
development of new markets. As of year-end 1998, it had invested in 14 companies
focused on next-generation applications of digital signal processors.

F-9
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Other investments consist of mutual funds that are acquired to generate
returns that offset changes in certain liabilities related to deferred
compensation arrangements. The mutual funds hold a variety of debt and equity
investments.

Following is information on the investments:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
UNREALIZED
FAIR --------------------------------
VALUE GAINS (LOSSES) NET COST
------ ----- -------- ---- ------
<S> <C> <C> <C> <C> <C>
1998
Equity investments................................... $1,516 $643 $ (51) $592 $ 924
Debt investments..................................... 978 139 -- 139 839
TI Ventures.......................................... 37 5 -- 5 32
Other investments.................................... 33 5 (5) -- 33
------ ---- -------- ---- ------
Total...................................... $2,564 $792 $ (56) $736 $1,828
====== ==== ======== ==== ======
1997
Equity investments................................... $ 53 $ 50 $ (36) $ 14 $ 39
TI Ventures.......................................... 10 -- -- -- 10
Other investments.................................... 6 5 -- 5 1
------ ---- -------- ---- ------
Total...................................... $ 69 $ 55 $ (36) $ 19 $ 50
====== ==== ======== ==== ======
</TABLE>

Investments are stated at fair value, which is based on market quotes,
current interest rates or management estimates, as appropriate. Adjustments to
fair value of the equity and debt investments, which are classified as
available-for-sale, are recorded as an increase or decrease in stockholders'
equity. Adjustments to fair value of the venture fund are recorded in other
income (expense) net. Adjustments to fair value of the other investments, which
are classified as trading, are recorded in operating expense. Cost or amortized
cost, as appropriate, was determined on a specific identification basis.
Proceeds from sales of equity and debt investments were zero in 1998, $26
million in 1997 and zero in 1996. There were no gross realized gains or losses
from sales of equity and debt investments in 1998 and 1996, and there was a $16
million gain in 1997.

NON-CASH INVESTING ACTIVITIES

Following are descriptions of those divestitures and acquisitions by TI
which involved significant non-cash amounts. In September, 1998, TI sold its
memory business to Micron Technology, Inc. (Micron). As a result, TI received
Micron common shares and notes with values of $881 million and $836 million,
respectively. In addition to TI's memory assets, Micron received $550 million in
cash from TI to facilitate the deployment of Micron's technology throughout the
acquired business. In the fourth quarter of 1998, TI made an additional $130
million payment to Micron as part of the contractually required working capital.
TI deferred the estimated pretax gain of $127 million on the sale of the memory
business until the recovery of the TI-provided financing.

In July 1996, TI acquired Silicon Systems, Inc. (SSi) by means of a stock
purchase agreement for $340 million in cash plus the assumption of $217 million
of 5-year installment notes and $61 million of current liabilities. Of the
aggregate purchase price of $618 million, TI recorded $426 million for the value
of assets acquired, $192 million for the value of acquired in-process research
and development, and $278 million for the value of liabilities assumed.

F-10
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997
-------- --------
<S> <C> <C>
Accounts payable............................................ $ 510 $ 698
Accrued salaries, wages, severance and vacation pay......... 320 405
Other accrued expenses and liabilities...................... 752 979
------ ------
Total............................................. $1,582 $2,082
====== ======
</TABLE>

DEBT AND LINES OF CREDIT

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
LONG-TERM DEBT 1998 1997
- -------------- -------- --------
<S> <C> <C>
6.75% notes due 1999........................................ $ 200 $ 200
6.875% notes due 2000....................................... 200 200
9.0% notes due 2001......................................... 55 55
6.65% notes, due in installments through 2001............... 159 204
9.25% notes due 2003........................................ 104 104
6.125% notes due 2006....................................... 300 300
8.75% notes due 2007........................................ 43 43
3.80% to 6.10% lira notes
(9% swapped for 1.60% U.S. dollar obligation)............. 184 190
Other....................................................... 49 57
------ ------
1,294 1,353
Less current portion long-term debt......................... 267 67
------ ------
Total............................................. $1,027 $1,286
====== ======
</TABLE>

The coupon rates for the notes due 2006 have been swapped for LIBOR-based
variable rates through 2006, for an effective interest rate of approximately
4.6% and 5.1% as of December 31, 1998 and 1997. The lira notes, and related
swaps, are due in installments through 2005.

As a result of a 1997 tender offer for any or all of the company's 9.0%,
9.25% and 8.75% notes, an aggregate of $248 million of debt principal was
tendered at a cash price of $280 million. This resulted in an extraordinary
charge of $22 million in the fourth quarter of 1997, after elimination of
deferred issuance costs and recognition of an income tax effect of $12 million.

Interest incurred on loans in 1998, 1997 and 1996 was $85 million, $114
million and $108 million. Of these amounts, $10 million in 1998, $20 million in
1997 and $35 million in 1996 were capitalized as a component of capital asset
construction costs. Interest paid on loans (net of amounts capitalized) was $75
million in 1998, $94 million in 1997 and $54 million in 1996.

Aggregate maturities of long-term debt due during the four years subsequent
to December 31, 1999, are as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
-------------------
<S> <C>
2000............................................... $312
2001............................................... 136
2002............................................... 27
2003............................................... 161
</TABLE>

The company maintains lines of credit to support commercial paper
borrowings and to provide additional liquidity. These lines of credit totaled
$669 million at December 31, 1998, and $651 million at

F-11
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1997. Of these amounts, at December 31, 1998 and 1997, $600 million
existed to support outstanding commercial paper borrowings or short-term bank
loans.

FINANCIAL INSTRUMENTS AND RISK CONCENTRATION

FINANCIAL INSTRUMENTS: In addition to the swaps discussed in the preceding
note, as of December 31, 1998, the company had forward currency exchange
contracts outstanding of $756 million to hedge net balance sheet exposures
(including $161 million to sell yen, $132 million to buy lira and $105 million
to buy deutsche marks). At December 31, 1997, the company had forward currency
exchange contracts outstanding of $275 million to hedge net balance sheet
exposures (including $101 million to buy lira, $73 million to buy deutsche marks
and $24 million to buy Singapore dollars). As of December 31, 1998 and 1997, the
carrying amounts and current market settlement values of these swaps and forward
contracts were not significant. The company uses forward currency exchange
contracts, including the lira note currency swaps, to minimize the adverse
earnings impact from the effect of exchange rate fluctuations on the company's
non-U.S. dollar net balance sheet exposures. The interest rate swaps for the
company's notes due 2006 are used to change the characteristics of the interest
rate stream on the debt from fixed rates to short-term variable rates in order
to achieve a mix of interest rates that, over time, is expected to moderate
financing costs. The effect of these interest rate swaps was to reduce interest
expense by $3 million and $2 million in 1998 and 1997, and increase interest
expense by $2 million in 1996.

In order to minimize its exposure to credit risk, the company limits its
counterparties on the forward currency exchange contracts and interest rate
swaps to investment-grade rated financial institutions.

As of December 31, 1998 and 1997, the fair value of long-term debt, based
on current interest rates, was approximately $1,346 million and $1,390 million,
compared with the historical cost amount of $1,294 million and $1,353 million.

RISK CONCENTRATION: Financial instruments that potentially subject the
company to concentrations of credit risk are primarily cash investments,
accounts receivable and noncurrent investments. The company places its cash
investments in investment-grade, short-term debt securities and limits the
amount of credit exposure to any one commercial issuer. Concentrations of credit
risk with respect to the receivables are limited due to the large number of
customers in the company's customer base and their dispersion across different
industries and geographic areas. The company maintains an allowance for losses
based upon the expected collectibility of accounts receivable. The company's
noncurrent investments at year-end 1998 have an aggregate fair value of $2,564
million. The investments are in high-technology companies and are subject to
price volatility and other uncertainties. They include a significant
concentration of Micron debt (fair value of $978 million) and equity instruments
(fair value of $1,463 million). The company adjusts the carrying amounts of the
investments to fair value each quarter.

STOCKHOLDERS' EQUITY

The company is authorized to issue 10,000,000 shares of preferred stock.
None is currently outstanding.

Each outstanding share of the company's common stock carries one-half of a
stock purchase right. Under certain circumstances, each right may be exercised
to purchase one one-thousandth of a share of the company's participating
cumulative preferred stock for $200. Under certain circumstances following the
acquisition of 20% or more of the company's outstanding common stock by an
acquiring person (as defined in the rights agreement), each right (other than
rights held by an acquiring person) may be exercised to purchase common stock of
the company or a successor company with a market value of twice the $200
exercise price. The rights, which are redeemable by the company at 1 cent per
right, expire in June 2008.

F-12
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Changes in other comprehensive income are as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
EQUITY, DEBT AND
PENSION LIABILITY CASH INVESTMENTS
ADJUSTMENT ADJUSTMENT TOTAL
----------------- ---------------- -----
<S> <C> <C> <C>
Balance, December 31, 1995..................... $ (45) $ -- $ (45)
Annual adjustments........................... 6 43 49
Tax effect of above.......................... -- (15) (15)
----- ----- -----
Balance, December 31, 1996..................... (39) 28 (11)
Annual adjustments........................... (24) (12) (36)
Tax effect of above.......................... -- 4 4
Reclassification of realized transactions,
net of tax of $6 million.................. -- (10) (10)
----- ----- -----
Balance, December 31, 1997..................... (63) 10 (53)
Annual adjustments........................... (117) 717 600
Tax effect of above.......................... -- (251) (251)
----- ----- -----
Balance, December 31, 1998..................... $(180) $ 476 $ 296
===== ===== =====
</TABLE>

RESEARCH AND DEVELOPMENT EXPENSE

Research and development expense, which totaled $1,206 million in 1998,
$1,536 million in 1997 and $1,181 million in 1996, included a charge in 1998 of
$25 million for the value of acquired in-process research and development from
two business acquisitions, GO DSP and Spectron. Research and development expense
for 1997 included a charge of $461 million for the value of acquired in-process
research and development as a result of the acquisition of Amati Communications
Corporation (Amati). The company acquired Amati as a result of an all-cash
tender offer in fourth quarter 1997 through which approximately 78% of Amati's
outstanding common shares were acquired for an aggregate of $306 million. As
contractually required, the company then acquired the balance of the Amati
shares through a second-step merger transaction for an aggregate of $91 million.
In addition to these stock purchase costs, the company incurred approximately
$117 million of additional acquisition costs, which included $50 million for the
value of TI common stock options contractually required to be issued to replace
outstanding Amati employee stock options. Research and development expense for
1996 included a charge of $192 million for the value of acquired in-process
research and development in connection with the 1996 acquisition of Silicon
Systems, Inc. (SSi) for $618 million. There was essentially no tax offset
associated with these acquired in-process research and development charges.

In connection with TI's acquisitions of GO DSP and Spectron, both of which
occurred in the first quarter of 1998, TI recorded charges of $10 million and
$15 million for purchased in-process R&D (purchased R&D), based upon the
appraised value of the related developmental projects. The Income Approach,
which included an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing each
purchased R&D project.

GO DSP's and Spectron's research and development related to DSP software
tools. These software tools, which include real-time operating systems, allow
DSP systems developers to improve productivity and reduce time-to-market. TI's
goal in these acquisitions was to extend its leadership in digital signal
processing solutions by offering a complete development environment, simplifying
DSP development, and making TI DSP solutions even more attractive for a broad
range of fast-growing markets.

At the time of the acquisitions, GO DSP and Spectron management estimated
the remaining cost and time to complete the purchased R&D projects was
approximately $7 million and 540 engineer-months. The term "engineer-month"
refers to the average amount of research work expected to be performed by an
engineer in a month. All the in-process projects were essentially completed on
schedule. TI expects to essentially meet its original return expectations.

The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and uncertain
assumptions utilized in the valuation analysis of the in-process research and
development. Uncertainties regarding projected operating cash flows could give
rise to unforeseen budget over-runs and/or revenue shortfalls in the event that
TI is unable to successfully commercialize the projects. TI management is
primarily responsible for estimating the value of the purchased R&D in all
acquisitions accounted for under the purchase method.

In connection with TI's acquisition of Amati in the fourth quarter of 1997,
TI recorded a charge of $461 million for the value of purchased in-process R&D
(purchased R&D) at the acquisition date, based upon the appraised value of the
related developmental projects. The Income Approach, which included an analysis
of the markets, cash flows, and risks associated with achieving such cash flows,
was the primary technique utilized in valuing each purchased R&D project.

At the time of the acquisition, Amati management estimated the remaining
cost to complete the purchased R&D projects to be approximately $13 million with
a remaining time requirement of approximately 1,300 engineer-months. All the
in-process projects were essentially completed on schedule. Several products
have been released, and although the DSL market has developed more slowly than
expected, TI expects improvements in the near term in Internet-related demand.
As this occurs, TI will be one of a very few suppliers who have demonstrated
interoperability and standards compliance. Thus, TI expects to essentially meet
its original return expectations.

The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and uncertain
assumptions utilized in the valuation analysis of the in-process research and
development. Uncertainties regarding projected operating cash flows could give
rise to unforeseen budget over-runs and/or revenue shortfalls in the event that
TI is unable to successfully commercialize the projects. TI management is
primarily responsible for estimating the value of the purchased R&D in all
acquisitions accounted for under the purchase method.

In connection with TI's acquisition of SSi in the third quarter of 1996, TI
recorded a charge of $192 million for the value of purchased in-process R&D
(purchased R&D) at the acquisition date, based upon the appraised value of the
related developmental projects. The Income Approach, which included an analysis
of the markets, cash flows, and risks associated with achieving such cash flows,
was the primary technique utilized in valuing each purchased R&D project.

SSi's research and development related to analog technology for hard disk
drives and removable storage devices. Historically, SSi had primarily emphasized
producing integrated circuits for the hard disk drive market. As of the
acquisition date, SSi's product development activities for this market had been
F-14
<PAGE> 106
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

expanded to include other magnetic optical storage devices that require advanced
technology and performance.

At the time of the acquisition SSi management estimated the remaining cost
to complete the purchased R&D projects to be approximately $16 million, over a
9-month period. All the in-process projects were essentially completed on
schedule. TI expects to essentially meet its original return expectations.

The relative stage of completion and projected operating cash flows of the
underlying in-process projects were the most significant and uncertain
assumptions utilized in the valuation analysis of the in-process research and
development. Uncertainties regarding projected operating cash flows could give
rise to unforeseen budget over-runs and/or revenue shortfalls in the event that
TI is unable to successfully commercialize the projects. TI management is
primarily responsible for estimating the value of the purchased R&D in all
acquisitions accounted for under the purchase method.

OTHER INCOME (EXPENSE) NET

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Interest income............................................. $166 $146 $62
Other income (expense) net.................................. 127 46 14
---- ---- ---
Total............................................. $293 $192 $76
==== ==== ===
</TABLE>

Other income included gains of $83 million in 1998 from the sale of TI's
interest in the TI-Acer joint venture to Acer Corporation and $66 million in
1997 from the sale of three divested activities, primarily software.

STOCK OPTIONS

The company has stock options outstanding to participants under the Texas
Instruments 1996 Long-Term Incentive Plan, approved by stockholders on April 18,
1996. Options are also outstanding under the 1988 Stock Option Plan and the
Texas Instruments Long-Term Incentive Plan; however, no further options may be
granted under these plans. Under all these stockholder-approved plans, unless
the options are acquisition-related replacement options, the option price per
share may not be less than 100 percent of the fair market value on the date of
the grant. Substantially all the options have a 10-year term. Options granted
subsequent to 1996 generally vest ratably over four years. Options granted prior
to that are fully vested.

Under the 1996 Long-Term Incentive Plan, the company may grant stock
options, including incentive stock options; restricted stock and restricted
stock units; performance units; and other stock-based awards. The plan provides
for the issuance of 74,000,000 shares of the company's common stock (plus shares
subject to acquisition-related replacement options); in addition, if any award
under the 1988 Stock Option Plan or the Long-Term Incentive Plan terminates,
then any unissued shares subject to the terminated award become available for
granting awards under the 1996 Long-Term Incentive Plan. No more than 8,000,000
shares of common stock may be awarded as restricted stock, restricted stock
units or other stock-based awards under the plan. In 1998, 1997 and 1996,
234,000, 403,000 and 220,056 shares of restricted stock units, which vest over
one to five years, were granted (weighted-average award-date value of $25.90,
$18.89 and $11.33 per share). In addition, in 1998, 1997 and 1996, zero, 11,400
and 139,624 previously unissued shares were issued as Annual Incentive Plan
stock awards (weighted-average award-

F-15
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

date value of zero, $11.47 and $11.64 per share). Compensation expense for
restricted stock units and annual stock awards totaled $3.9 million, $3.5
million and $1.6 million in 1998, 1997 and 1996.

The company also has stock options outstanding under the Employee Stock
Purchase Plan approved by stockholders in 1997. The plan provides for options to
be offered semiannually to all eligible employees in amounts based on a
percentage of the employee's compensation. The option price per share may not be
less than 85% of the fair market value on the date of grant. If the optionee
authorizes and does not cancel payroll deductions that will be equal to or
greater than the purchase price, options granted become exercisable seven
months, and expire not more than 13 months, from date of grant. There are no
options outstanding under the 1988 Employee Stock Option Purchase Plan, the
predecessor to the Employee Stock Purchase Plan.

Under the Stock Option Plan for Non-Employee Directors adopted in April
1998, the company will grant stock options to each non-employee director, once a
year, in the period beginning January 1999 and extending through 2003. Each
grant will be an option to purchase 5,000 shares with an option price equal to
fair market value on the date of grant. The option will vest ratably over four
years. Stock option transactions during 1998, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
EMPLOYEE
LONG-TERM WEIGHTED- STOCK AND WEIGHTED-
INCENTIVE AVERAGE STOCK OPTION AVERAGE
AND STOCK EXERCISE PURCHASE EXERCISE
OPTION PLANS PRICE PLANS PRICE
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Balance, Dec. 31, 1995.................. 31,530,288 $ 7.31 4,534,836 $14.04
Granted............................... 10,653,500 11.46 3,394,184* 14.07
Forfeited............................. (794,956) 6.54 (1,599,636) 14.61
Expired............................... -- -- -- --
Exercised**........................... (1,738,640) 6.45 (1,544,648) 12.59
---------- ------ ---------- ------
Balance, Dec. 31, 1996.................. 39,650,192 8.48 4,784,736 14.33
Granted............................... 20,474,320 18.23 2,375,774* 24.15
Forfeited............................. (4,730,764) 14.40 (1,526,670) 15.01
Expired............................... -- -- -- --
Exercised**........................... (7,748,876) 7.01 (2,974,362) 14.48
---------- ------ ---------- ------
Balance, Dec. 31, 1997.................. 47,644,872 12.32 2,659,478 22.36
Granted............................... 16,128,120 23.94 3,266,190* 22.93
Granted, acquisition-related***....... 2,464,378 11.07 -- --
Forfeited............................. (2,627,974) 20.37 (486,978) 24.01
Expired............................... -- -- -- --
Exercised**........................... (8,153,214) 8.93 (3,141,042) 22.75
---------- ------ ---------- ------
Balance, Dec. 31, 1998.................. 55,456,182 $15.76 2,297,648 $22.29
========== ====== ========== ======
</TABLE>

- ---------------

* Excludes options offered but not accepted.

** Includes previously unissued shares and treasury shares of 7,686,246 and
3,608,010; 10,685,967 and 37,271; and 3,283,288 and zero for 1998, 1997 and
1996.

*** Aggregate value of $52 million for two acquisitions.

In accordance with the terms of APB No. 25, the company records no
compensation expense for its stock option awards. As required by SFAS No. 123,
the company provides the following disclosure of hypothetical values for these
non-acquisition-related awards. The weighted-average grant-date value of options
granted during 1998, 1997 and 1996 was estimated to be $11.08, $7.86 and $4.62
under the Long-Term Incentive Plans and the 1988 Stock Option Plan (Long-Term
Plans) and $6.67, $6.74 and $3.03 under the Employee Stock and Stock Option
Purchase Plans (Employee Plans). These values were

F-16
<PAGE> 108
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1998, 1997 and 1996: expected dividend yields
of .71%, .93% and 1.48% (Long-Term Plans) and .74%, .70% and 1.21% (Employee
Plans); expected volatility of 43%, 39% and 39%; risk-free interest rates of
5.47%, 5.76% and 5.42% (Long-Term Plans) and 5.32%, 5.69% and 6.15% (Employee
Plans); and expected lives of 6 years (Long-Term Plans) and .8 years, .8 years
and 1.5 years (Employee Plans). Had compensation expense been recorded based on
these hypothetical values, the company's 1998 net income would have been $328
million, or diluted earnings per share of $0.41. A similar computation for 1997
and 1996 would have resulted in net income of $1764 million and $40 million, or
diluted earnings per share of $2.22 and $0.06. Because options vest over several
years and additional option grants are expected, the effects of these
hypothetical calculations are not likely to be representative of similar future
calculations.

Summarized information about stock options outstanding under the Long-Term
Plans at December 31, 1998, is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------- -----------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT DEC. 31, CONTRACTUAL EXERCISE AT DEC. 31, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
- -------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .05 to 13.62............. 23,832,846 5.5 years $ 8.76 21,389,972 $ 8.52
15.11 to 24.90............. 27,702,834 8.5 19.92 3,674,860 17.50
25.18 to 40.54............. 3,920,502 9.3 28.91 257,014 33.11
---------- --------- ------ ---------- ------
$ .05 to 40.54............. 55,456,182 7.3 $15.76 25,321,846 $10.08
========== ========= ====== ========== ======
</TABLE>

At December 31, 1998, the stock options outstanding under the Employee
Plans have exercise prices of $21.52 and $24.65, depending on the date of grant,
and a remaining contractual life of three or nine months. Of the total
outstanding options, 560,458 are exercisable at year-end 1998.

At year-end 1998, 43,723,542 shares were available for future grants under
the 1996 Long-Term Incentive Plan and 15,036,536 shares under the Employees
Stock Purchase Plan. As of year-end 1998, 100,094,936 shares were reserved for
issuance under the company's stock option and incentive plans and 17,334,184
shares were reserved for issuance under the Employee Stock Purchase Plan.

In 1997, the company began a stock repurchase program with the goal of
neutralizing the dilutive effect of shares to be issued upon the exercise of
stock options under the Employee Stock Purchase Plan and Long-Term Plans.
Treasury shares acquired in connection with this repurchase program and other
stock transactions in 1998, 1997 and 1996 were 4,463,283 shares, 754,511 shares
and 7,730 shares. Previously unissued common shares issued under the Long-Term
Plans and the Annual Incentive Plan in 1998, 1997 and 1996 were 67,696 shares,
60,348 shares and 196,144 shares. Treasury shares issued under the Texas
Instruments Restricted Stock Unit Plan for Directors in 1998, 1997 and 1996 were
zero shares, zero shares and 2,334 shares.

RETIREMENT AND INCENTIVE PLANS

The company provides various retirement plans for employees including
pension, savings and deferred profit sharing plans. Incentive plans include
profit sharing payments and annual performance awards.

U.S. RETIREMENT PLANS: Effective January 1, 1998, for U.S. employees hired
on or after December 1, 1997, the company provides a defined contribution plan
whereby the company contributes 2% of an employee's earnings, and a matched
savings program whereby an employee's contribution, up to 4% of the employee's
earnings, is matched by the company at a dollar-per-dollar rate. The
contributions may be invested in several investment funds including TI common
stock. During a selection period in 1997,

F-17
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

employees employed prior to December 1, 1997, irrevocably elected whether to
choose this plan or remain in the savings and defined benefit programs described
below. Approximately 36% chose this plan.

For U.S. employees hired prior to December 1, 1997, the company provides a
matched savings program whereby an employee's contribution, up to 4% of the
employee's earnings (subject to statutory limitations), is matched by the
company at the rate of 50 cents per dollar. Available investments are the same
as above. Also provided is a defined benefit plan with benefits based on years
of service and employee's compensation. The plan is a career-average-pay plan
which has been amended periodically in the past to produce approximately the
same results as a final-pay type plan. The board of directors of the company has
expressed an intent to make such amendments in the future, circumstances
permitting, and the expected effects of such amendments have been considered in
calculating U.S. pension expense.

Certain of the profit sharing plans worldwide provide that, depending on
the individual plan, a portion of the profit sharing earned by employees is
contributed to a deferred plan. For U.S. employees, 50% of profit sharing
amounts are deferred. Several investment options are available, including TI
common stock. While the board of directors of the company has authorized the
issuance of 18,467,672 shares of previously unissued TI common shares for
deferred profit sharing and savings plans worldwide, none have been issued in
the three years ended December 31, 1998. Instead, the trustees of these plans
worldwide have purchased outstanding TI common shares: 7,506,168 shares in 1998,
7,070,942 shares in 1997 and 6,247,810 shares in 1996.

The company's aggregate expense for U.S. employees under the defined
contribution, deferred profit sharing and matched savings plans was $56 million
in 1998, $55 million in 1997 and $17 million in 1996.

The company's U.S. employees are currently eligible to receive, during
retirement, specified company-paid medical benefits. The plan is contributory
and premiums are adjusted annually. For employees retiring on or after January
5, 1993, the company has specified a maximum annual amount per retiree, based on
years of service, that it will pay toward retiree medical premiums. For
employees who retired prior to that date, the company maintains a consistent
level of cost sharing between the company and the retiree. Effective January 1,
1998, new employees are eligible for this benefit when they reach 20 years of
service, regardless of age. For a 15-year transition period, current employees
qualify for eligibility under either the 20-year rule or the previous
requirement, which was based upon retirement eligibility under the defined
benefit pension plan. Coverage eligibility under the 20-year rule is only
available at termination, i.e., no subsequent election to participate is
allowable.

Expense of the U.S. defined benefit and retiree health care benefit plans
was as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
RETIREE
DEFINED BENEFIT HEALTH CARE
------------------ ------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost......................................... $ 36 $ 36 $ 40 $ 3 $ 3 $ 4
Interest cost........................................ 48 48 51 21 20 22
Expected return on plan assets....................... (38) (33) (41) -- -- --
Amortization of prior service cost................... 2 3 3 -- -- --
Amortization of transition obligation................ (5) (5) (8) -- -- --
Recognized net actuarial loss........................ 1 2 3 -- -- --
---- ---- ---- --- --- ---
Total...................................... $ 44 $ 51 $ 48 $24 $23 $26
==== ==== ==== === === ===
</TABLE>

Settlement and curtailment gains (losses) of the U.S. defined benefit plan
recognized in 1998, 1997 and 1996 were zero and $(6) million; $3 million and $18
million; and $5 million and zero. For the retiree health care benefit plan they
were zero and $1 million; zero and $1 million; and zero and zero.

F-18
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Obligation data for the U.S. defined benefit and retiree health care
benefit plans and asset data for the U.S. defined benefit plan at December 31
were as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
RETIREE
DEFINED BENEFIT HEALTH CARE
--------------- -------------
1998 1997 1998 1997
------ ------ ----- -----
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year..................... $ 688 $ 819 $ 319 $ 312
Service cost.............................................. 36 36 3 3
Interest cost............................................. 48 48 21 20
Plan participant's contributions.......................... -- -- 6 5
Benefits paid............................................. (38) (202) (25) (22)
Actuarial loss............................................ 50 36 22 --
Settlements............................................... (84) (28) -- --
Curtailments.............................................. 9 (24) 6 1
Special termination benefit............................... 9 3 -- --
Divestiture............................................... (11) -- -- --
----- ----- ----- -----
Benefit obligation at end of year........................... 707 688 352 319
----- ----- ----- -----
Change in plan assets
Fair value of plan assets at beginning of year.............. 543 611
Actual return on plan assets.............................. 88 114
Employer contribution..................................... 26 42
Benefits paid............................................. (28) (196)
Settlements............................................... (84) (28)
Divestiture............................................... (14) --
----- -----
Fair value of plan assets at end of year.................... 531 543
----- -----
Funded status............................................... (176) (145) (352) (319)
Unrecognized net actuarial (gain)......................... (29) (29) (5) (33)
Unrecognized prior service cost........................... 6 8 (2) (2)
Unrecognized transition obligation........................ (10) (16) -- --
----- ----- ----- -----
Accrued retirement at December 31........................... (209) (182) (359) (354)
Less current portion........................................ 27 40 23 19
----- ----- ----- -----
Accrued U.S. retirement costs............................... $(182) $(142) $(336) $(335)
===== ===== ===== =====
</TABLE>

The U.S. defined benefit and retiree health care obligations for 1998 and
1997 were determined using assumed discount rates of 6.75% and 7.0%. The assumed
average long-term pay progression rate was 4.25%. The assumed long-term rate of
return on plan assets was 9.0%. The retiree health care benefit obligation was
determined using health care cost trend rates of 6.0% for 1999 decreasing to
5.0% by 2000. Increasing (decreasing) the health care cost trend rates by 1%
would have increased (decreased) the retiree health care benefit obligation at
December 31, 1998, by $15 million/$(15) million and 1998 plan expense by $1
million/ $(1) million.

NON-U.S. RETIREMENT PLANS: Retirement coverage for non-U.S. employees of
the company is provided, to the extent deemed appropriate, through separate
plans. Defined retirement benefits are based on years of service and employee's
compensation, generally during a fixed number of years immediately prior to
retirement.

Certain non-U.S. locations provide for deferral of profit sharing amounts
with contributions generally invested in TI common stock. The related expense
for these contributions was $3 million in 1998, $6 million in 1997 and zero in
1996.
F-19
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Expense of the non-U.S. defined benefit plans was as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Service cost................................................ $ 53 $ 59 $ 64
Interest cost............................................... 31 35 34
Expected return on plan assets.............................. (40) (38) (35)
Amortization of prior service cost.......................... (1) 1 1
Amortization of transition obligation....................... 2 2 2
Recognized net actuarial loss............................... 12 9 10
---- ---- ----
Total............................................. $ 57 $ 68 $ 76
==== ==== ====
</TABLE>

Settlement and curtailment gains (losses) of the non-U.S. defined benefit
plans recognized in 1998 and 1997 were $(5) million and zero; and $(3) million
and zero. There were no such items in 1996.

Obligation and asset data for the non-U.S. defined benefit plans at
September 30 were as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997
-------- --------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year..................... $ 999 $ 940
Service cost.............................................. 53 59
Interest cost............................................. 31 35
Benefits paid............................................. (20) (19)
Actuarial gain............................................ (83) (16)
----- -----
Benefit obligation at end of year........................... 980 999
----- -----
Change in plan assets
Fair value of plan assets at beginning of year.............. 543 500
Actual return on plan assets.............................. 21 59
Employer contribution..................................... 36 38
Benefits paid............................................. (20) (19)
Actuarial gain............................................ (40) (35)
----- -----
Fair value of plan assets at end of year.................... 540 543
----- -----
Funded status............................................... (440) (456)
Unrecognized net actuarial loss........................... 250 252
Unrecognized prior service cost........................... 8 9
Unrecognized transition obligation........................ 9 13
Adjustments from Sept. 30 to Dec. 31...................... (4) 4
----- -----
Net non-U.S. amount recognized.................... $(177) $(178)
===== =====
Amounts recognized in the balance sheet consist of:
Accrued retirement, current............................... $ (2) $ (3)
Accrued retirement, noncurrent............................ (377) (254)
Prepaid benefit cost...................................... 14 10
Intangible asset.......................................... 8 6
Accumulated other comprehensive income.................... 180 63
----- -----
Total............................................. $(177) $(178)
===== =====
</TABLE>

The range of assumptions used for the non-U.S. defined benefit plans
reflects the different economic environments within the various countries.

F-20
<PAGE> 112
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The defined benefit obligations were determined as of September 30 using a
range of assumed discount rates of 2.5% to 7.0% and a range of assumed average
long-term pay progression rates of 3.0% to 6.0%. The range of assumed long-term
rates of return on plan assets was 7.0% to 8.0%. Accrued retirement at September
30, 1998 and 1997 includes projected benefit obligations of $841 million and
$883 million and accumulated benefit obligations of $630 million and $636
million, versus plan assets of $395 million and $408 million, for three plans
whose obligations exceed their assets.

RESTRUCTURING ACTIONS

In the second quarter of 1998, the company announced that, as a result of
the various business divestitures over the past several years, the pending sale
of its memory business and weakness in the current semiconductor market
environment, it was implementing a severance/manufacturing efficiency program in
order to more closely match the size and cost of its support functions with the
company's overall size and to further combine manufacturing resources for more
efficient operations. The program, which primarily affected the company's
corporate activities and semiconductor business, included the elimination of
3,441 jobs around the world through voluntary programs, attrition, outsourcing
and layoffs, as well as the closing of several facilities. As a result, the
company took a pretax charge of $219 million in the second quarter, of which
$126 million was included in marketing, general and administrative expense and
$93 million in cost of revenues. Of the $219 million charge, $161 million was
for severance, $41 million for asset write-downs and $17 million for vendor
cancellation and lease charges. Of the $41 million for asset write-downs, $25
million was for U.S. semiconductor inventories and $16 million was for fixed
assets, primarily accelerated depreciation on assets phased out during 1998 in
connection with the winding down of production at a semiconductor manufacturing
facility in Singapore. The fixed assets were subsequently sold for scrap at a
nominal value. Of the $17 million for vendor cancellation and lease charges, $15
million was for required vendor fees for cancellation of purchase contracts for
chemicals, supplies and equipment as a result of a U.S. facility shutdown. At
year-end 1998, the program had essentially been completed, with most severance
costs paid except for $49 million, which will primarily be paid in 1999. Of the
3,441 jobs, 3,260 had been eliminated, and 181 will be eliminated in 1999.

In the third quarter of 1998, the company recorded a $14 million charge for
additional depreciation on fixed assets primarily located in the semiconductor
manufacturing facility in Singapore. This action was taken in connection with
the severance/manufacturing efficiency program announced during the second
quarter of 1998. This asset write down charge was included in cost of revenues.

In the fourth quarter of 1998, the company took further steps to enhance
manufacturing efficiency, including the announced closing of a semiconductor
assembly operation and sale of a materials & controls manufacturing operation,
both in Europe. The sale was completed on December 31, 1998. The assembly
operation closing, which is ongoing, affected 740 employees. As a result of
these actions, the company took a fourth-quarter 1998 pretax charge of $72
million, of which $27 million was included in cost of revenues, $24 million in
other income (expense) net and $21 million in marketing, general and
administrative expense. Of this $72 million charge, $35 million was for
severance, $35 million for other cash-related costs and $2 million for asset
write-downs, primarily to adjust fixed assets in the European materials &
controls operation to actual sale value. Of the $35 million severance charge,
$19 million had been paid by year-end 1998 and $16 million will be paid in 1999.
Of the other $35 million charge, $20 million was a cash payment required as part
of an agreement with the third-party buyer of a materials & controls
manufacturing operation in Europe. The balance was for previously-received
government grants expected to be repaid as a result of the closing of the
European semiconductor assembly operation.

In the first quarter of 1997, the company sold its mobile computing
business and terminated its digital imaging printing development program. As a
result of these divestitures, the company took a first-quarter pretax charge of
$56 million, of which $28 million was included in cost of revenues and $28
million in marketing, general and administrative expense. Of this $56 million
charge, $27 million was for severance for involuntary reductions worldwide.
These severance actions were essentially completed by the end of the
F-21
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

quarter and affected approximately 1,045 employees. The balance of $29 million
was for other costs associated with the business sale and program termination,
including vendor cancellation and lease charges. Essentially all costs were paid
in 1998. In the second quarter of 1997, TI sold several activities, principally
software, for a pre-tax gain of $66 million, after transaction costs. These
transaction costs totaled $54 million and included severance of $17 million for
372 employees, who left TI within three months of the related divestitures, $24
million for vendor and warranty obligations, which extend through 2002, $4
million for professional fees, and $9 million for various other costs. In the
fourth quarter of 1997, the company took a pretax charge of $42 million, of
which $30 million was included in cost of revenues and $12 million in marketing,
general and administrative expense, primarily for severance costs related to
cost-reduction actions by the materials & controls business. These actions,
which are expected to be completed in first-quarter 1999, affected approximately
260 employees. The terminated employees were in plants located in Holland,
Italy, Canada and Michigan. Costs of $5 million were paid by year-end 1998.
Remaining severance is to be paid in installments through 2002.

In the fourth quarter of 1996, the company took a pretax charge of $208
million, of which $169 million was included in cost of revenues and $39 million
was included in marketing, general and administrative expense. Of the $208
million, $91 million was for severance for employment reduction actions in the
United States and selected reductions worldwide. These actions, which primarily
involved the semiconductor business as well as divested activities, were
essentially completed by year-end 1996 and affected approximately 2,600
employees. Of the severance cost of $91 million, $34 million was paid in 1996
and $57 million was paid in 1997. The balance of this charge, $117 million, was
for vendor cancellation and other cash-related costs of $47 million and asset
write-downs of $70 million on several product lines, primarily mobile computing,
an operation divested in first-quarter 1997. The asset write-downs were to
adjust inventory and fixed assets to actual sale value. Of the $70 million asset
write-down charge, $54 million was for mobile computing.

F-22
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Set forth below is a reconciliation of individual restructuring accruals
(in millions of dollars).
<TABLE>
<CAPTION>
YEAR OF CHARGE
----------------------------------------------------------------------------
BALANCE, PRIOR 1996 1997
ACTIONS -- GRANT ----------------------------- --------------------------------------------
REPAYMENT EMPLOYMENT DIVESTITURE RESERVES
AND LEASE REDUCTIONS -- OF M&C COST AGAINST
OBLIGATION SC & DIVESTED MCB/DIPD/TELE MCB/TERMINATION REDUCTION GAINS ON
DESCRIPTION* TOTAL COSTS ACTIVITIES WRITE-DOWNS OF DIPD ACTION BUSINESS SALES
- ------------ ----- ---------------- ------------- ------------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995..................... $ 15 $ 15
CHARGES:
Severance................ 91 $ 91
Vendor and warranty
obligations............. 47 $ 47
Various charges.......... 7 7
Asset write-downs........ 70 70
DISPOSITIONS:
Severance payments....... (34) (34)
Various payments......... (7) (7)
Non-cash write-downs of
assets.................. (70) (70)
Adjustments-net reversal
to income............... (3) (3)
----- ---- ---- ----
BALANCE, DECEMBER 31,
1996.................... 116 12 57 47
----- ---- ---- ----
CHARGES:
Severance................ 73 $ 27 $ 29 $ 17
Vendor and warranty
obligations............. 42 18 24
Transaction costs,
including professional
fees.................... 4 4
Various charges.......... 33 11 13 9
DISPOSITIONS:
Severance payments....... (88) (57) (24) (7)
Vendor and warranty
obligations............. (16) (16)
Transaction cost
payments................ (2) (2)
Various payments......... (10) (10)
Adjustments-net reversal
to income............... -- 4 (4)
----- ---- ---- ---- ---- ---- ----
BALANCE, DECEMBER 31,
1997.................... 152 12 -- 47 10 42 41
----- ---- ---- ---- ---- ---- ----
CHARGES:
Severance................ 196
Vendor and warranty
obligations............. 17
Grant Repayment.......... 15
Cash payment owed
to buyer................ 20
Various charges.......... 7
Asset write-downs........ 57
DISPOSITIONS:
Severance payments....... (140) (1) (5) (5)
Vendor and warranty
obligations............. (66) (47) (1) (1)
Cash payment to buyer.... (20)
Transaction cost
payments................ (2) (2)
Non-cash write-down of
assets.................. (57)
Adjustments-net reversal
to income............... (16) (12) 8 (16) (9)
----- ---- ---- ---- ---- ---- ----
BALANCE, DECEMBER 31,
1998.................... $163 $ -- $ -- $ -- $ 16 $ 21 $ 24
===== ==== ==== ==== ==== ==== ====

1998
-------------------------------------
SC OPERATION
SC AND SINGAPORE CLOSING & M&C
CORP. AND U.S. SALE OF
DESCRIPTION* ACTIONS WRITE-DOWNS OPERATION
- ------------ ------- ----------- -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31,
1995.....................
CHARGES:
Severance................
Vendor and warranty
obligations.............
Various charges..........
Asset write-downs........
DISPOSITIONS:
Severance payments.......
Various payments.........
Non-cash write-downs of
assets..................
Adjustments-net reversal
to income...............
BALANCE, DECEMBER 31,
1996....................
CHARGES:
Severance................
Vendor and warranty
obligations.............
Transaction costs,
including professional
fees....................
Various charges..........
DISPOSITIONS:
Severance payments.......
Vendor and warranty
obligations.............
Transaction cost
payments................
Various payments.........
Adjustments-net reversal
to income...............
BALANCE, DECEMBER 31,
1997....................
CHARGES:
Severance................ $ 161 $ 35
Vendor and warranty
obligations............. 17
Grant Repayment.......... 15
Cash payment owed
to buyer................ 20
Various charges.......... -- 7
Asset write-downs........ $ 55 2
DISPOSITIONS:
Severance payments....... (110) (19)
Vendor and warranty
obligations............. (17)
Cash payment to buyer.... (20)
Transaction cost
payments................
Non-cash write-down of
assets.................. (55) (2)
Adjustments-net reversal
to income............... (2) 15**
----- ---- ----
BALANCE, DECEMBER 31,
1998.................... $ 49 $ -- $ 53
===== ==== ====
</TABLE>

- ---------------

* Abbreviations
SC = Semiconductor Business
MCB = Mobile Computing Business
DIPD = Digital Imaging Printing Development Program
TELE = Telecommunications Business
M&C = Materials and Controls Business
Corp. = Corporate Division

** Includes the effect of an $8 million reclassification of
semiconductor-related grant repayment obligations from the "Balance, prior
actions" column and an $8 million reclassification of M&C-related
liabilities, primarily for grant repayment obligations, from the "1997 M&C
cost reduction action" column. These reclassifications did not affect income.

F-23
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA

TI develops, manufactures and sells a variety of products used in the
commercial electronic and electrical equipment industry, primarily for
industrial and consumer markets. The company's principal businesses are based on
TI's broad semiconductor technology and application of this technology to
digital solutions for the networked society.

TI HAS THREE PRINCIPAL BUSINESSES: Semiconductor, Materials & Controls and
Educational & Productivity Solutions. Each of these is a business segment, with
its respective financial performance detailed in this report.

Semiconductor consists of digital signal processors, analog chips, standard
logic, application-specific integrated circuits, reduced instruction-set
computing microprocessors and microcontrollers. These semiconductors are sold
primarily to original-equipment manufacturers and through distributors.

Materials & Controls consists primarily of electrical and electronic
control devices, electronic connectors and clad metals. They are sold primarily
to original-equipment manufacturers and through distributors.

Educational & Productivity Solutions, which includes educational and
graphing calculators, are marketed primarily through retailers and to schools
through instructional dealers.

Operating profits of the three principal businesses include the effects of
profit sharing and exclude the effects of special charges and gains. The results
for semiconductor include the effects of all royalty revenues from
semiconductor-related cross-license agreements. Business assets are the owned or
allocated assets used by each business.

Included in corporate activities are general corporate expenses,
elimination of intersegment transactions (which are generally intended to
approximate market prices), results for TI's emerging digital imaging operation
and royalty revenues from computer-related cross-license agreements. Assets of
corporate activities include unallocated cash, short-term investments,
noncurrent investments and deferred income taxes.

Divested activities include the historical operating results and assets of
memory (sold in 1998), mobile computing and software (both sold in 1997), custom
manufacturing services and printers (both sold in 1996) and other smaller
divestitures.

BUSINESS SEGMENT NET REVENUES

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Semiconductor
Trade..................................................... $6,267 $6,490 $5,340
Intersegment.............................................. 23 24 45
------ ------ ------
6,290 6,514 5,385
------ ------ ------
Materials & Controls
Trade..................................................... 943 950 887
Intersegment.............................................. 1 4 3
------ ------ ------
944 954 890
------ ------ ------
Educational & Productivity Solutions
Trade..................................................... 456 447 422
Corporate activities........................................ 140 154 91
Divested activities......................................... 630 1,681 3,152
------ ------ ------
Total............................................. $8,460 $9,750 $9,940
====== ====== ======
</TABLE>

F-24
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

BUSINESS SEGMENT PROFIT (LOSS)

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Semiconductor............................................... $1,439 $1,546 $1,012
Materials & Controls........................................ 142 123 90
Educational & Productivity Solutions........................ 76 59 56
Corporate activities........................................ (235) (273) (312)
Special charges and gains................................... (466) (532) (400)
Interest on loans/other income (expense) net, excluding 1998
and 1997 net gains of $59 million and $66 million included
above..................................................... 159 32 3
Divested activities......................................... (498) (242) (472)
------ ------ ------
Income (loss) from continuing operations before provision
for income taxes and extraordinary item................... $ 617 $ 713 $ (23)
====== ====== ======
</TABLE>

Details of special charges and gains are as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Severance/manufacturing efficiency program.................. $(233) $ -- $ --
Closing of a semiconductor operation and sale of a materials
& controls operation, of which $(24) million was included
in other income (expense) net............................. (72) -- --
Discontinuance of TI-Hitachi joint venture.................. (219) -- --
Sale of interest in TI-Acer joint venture................... 83 -- --
Acquired in-process R&D charge.............................. (25) (461) (192)
Severance and other costs, primarily from the divestiture of
mobile computing.......................................... -- (56) --
Other income: gain on sale of three divested activities,
primarily software........................................ -- 66 --
Termination of Thailand joint venture agreements............ -- (44) --
Severance and other costs, primarily for materials &
controls cost reductions.................................. -- (42) --
Asset write-downs and other costs, primarily mobile
computing................................................. -- -- (117)
Severance costs for employment reductions, primarily for
semiconductor and divested activities..................... -- -- (91)
Other....................................................... -- 5 --
----- ----- -----
Total............................................. $(466) $(532) $(400)
===== ===== =====
</TABLE>

BUSINESS SEGMENT ASSETS

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Semiconductor............................................... $ 4,710 $ 4,798 $4,763
Materials & Controls........................................ 397 391 380
Educational & Productivity Solutions........................ 117 151 141
Corporate activities........................................ 5,932 4,309 2,197
Divested activities......................................... 94 1,200 1,350
Net assets of discontinued operations....................... -- -- 529
------- ------- ------
Total............................................. $11,250 $10,849 $9,360
======= ======= ======
</TABLE>

F-25
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

BUSINESS SEGMENT PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
DEPRECIATION 1998 1997 1996
- ------------ ------ ------ ----
<S> <C> <C> <C>
Semiconductor............................................... $ 913 $ 853 $655
Materials & Controls........................................ 47 46 41
Educational & Productivity Solutions........................ 1 1 --
Corporate and other activities.............................. 74 58 56
Divested activities......................................... 134 151 152
------ ------ ----
Total............................................. $1,169 $1,109 $904
====== ====== ====
</TABLE>

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
ADDITIONS 1998 1997 1996
- --------- ------ ------ ------
<S> <C> <C> <C>
Semiconductor............................................... $ 731 $ 858 $1,633
Materials & Controls........................................ 49 49 53
Educational & Productivity Solutions........................ 1 1 --
Corporate activities........................................ 32 147 225
Divested activities......................................... 218 183 152
------ ------ ------
Total............................................. $1,031 $1,238 $2,063
====== ====== ======
</TABLE>

The following geographic area data include trade revenues, based on product
shipment destination and royalty payor location, and property, plant and
equipment based on physical location:

GEOGRAPHIC AREA NET TRADE REVENUES

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
United States............................................... $2,722 $3,216 $3,548
Japan....................................................... 1,619 1,971 1,832
Singapore................................................... 798 1,110 866
Rest of world............................................... 3,321 3,453 3,694
------ ------ ------
Total............................................. $8,460 $9,750 $9,940
====== ====== ======
</TABLE>

GEOGRAPHIC AREA PROPERTY, PLANT AND EQUIPMENT (NET)

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
United States............................................... $2,440 $2,640 $2,619
Japan....................................................... 417 478 519
Rest of world............................................... 516 1,062 1,024
------ ------ ------
Total............................................. $3,373 $4,180 $4,162
====== ====== ======
</TABLE>

F-26
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

Income (Loss) from Continuing Operations before Provision for Income Taxes
and Extraordinary Item.

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
U.S. NON-U.S. TOTAL
----- -------- -----
<S> <C> <C> <C>
1998........................................................ $ 201 $416 $617
----- ---- ----
1997........................................................ 93 620 713
----- ---- ----
1996........................................................ (529) 506 (23)
----- ---- ----
</TABLE>

PROVISION (CREDIT) FOR INCOME TAXES

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
U.S. FEDERAL NON-U.S. U.S. STATE TOTAL
------------ -------- ---------- -----
<S> <C> <C> <C> <C>
1998
Current............................................. $ 4 $263 $(7) $260
Deferred............................................ (13) (36) (1) (50)
----- ---- --- ----
Total....................................... $ (9) $227 $(8) $210
===== ==== === ====
1997
Current............................................. $ 112 $286 $ 4 $402
Deferred............................................ 51 (44) 2 9
----- ---- --- ----
Total....................................... $ 163 $242 $ 6 $411
===== ==== === ====
1996
Current............................................. $(125) $202 $(3) $ 74
Deferred............................................ (44) (6) (1) (51)
----- ---- --- ----
Total....................................... $(169) $196 $(4) $ 23
===== ==== === ====
</TABLE>

Principal reconciling items from income tax computed at the statutory
federal rate follow.

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Computed tax at statutory rate.............................. $216 $249 $ (8)
Effect of acquired in-process R&D........................... 4 161 67
Effect of non-U.S. rates.................................... 76 (11) (3)
Research and experimentation tax credits.................... (20) (30) (11)
Effect of U.S. state income taxes........................... (14) 4 (3)
Effect of joint venture costs............................... (48) 31 12
Other....................................................... (4) 7 (31)
---- ---- ----
Total provision for income taxes.................. $210 $411 $ 23
==== ==== ====
</TABLE>

Included in the effect of non-U.S. rates for 1996 is a $4 million benefit
from tax loss carryforward utilization reduced by certain non-U.S. taxes and
losses for which no benefit was recognized. Provision has been made for deferred
taxes on undistributed earnings of non-U.S. subsidiaries to the extent that
dividend payments from such companies are expected to result in additional tax
liability. The remaining undistributed earnings (approximately $620 million at
December 31, 1998) have been indefinitely reinvested; therefore, no provision
has been made for taxes due upon remittance of these earnings. Determination of
the amount of unrecognized deferred tax liability on these unremitted earnings
is not practicable.

F-27
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The primary components of deferred income tax assets and liabilities at
December 31 were as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1998 1997
------- -------
<S> <C> <C>
Deferred income tax assets:
Accrued retirement costs (pension and retiree health
care).................................................. $ 322 $ 221
Inventories and related reserves.......................... 242 216
Accrued expenses.......................................... 251 195
Loss and credit carryforwards............................. 49 80
Other..................................................... 59 210
----- -----
923 922
----- -----
Less valuation allowance.................................... (173) (121)
----- -----
750 801
----- -----
Deferred income tax liabilities:
Investments............................................... (256) (5)
Property, plant and equipment............................. (104) (165)
International earnings.................................... (19) (38)
Other..................................................... (146) (170)
----- -----
(525) (378)
----- -----
Net deferred income tax asset............................... $ 225 $ 423
===== =====
</TABLE>

As of December 31, 1998 and 1997, the net deferred income tax asset of $225
million and $423 million was presented in the balance sheet, based on tax
jurisdiction, as deferred income tax assets of $606 million and $711 million and
deferred income tax liabilities of $381 million and $288 million. The valuation
allowance shown above reflects the company's ongoing assessment regarding the
realizability of certain non-U.S. deferred income tax assets. The balance of the
deferred income tax assets is considered realizable based on carryback
potential, existing taxable temporary differences and expectation of future
income levels comparable to recent results. Such future income levels are not
assured because of the nature of the company's businesses, which are generally
characterized by rapidly changing technology and intense competition.

The company has aggregate U.S. and non-U.S. tax loss carryforwards of
approximately $125 million. Of this amount, $117 million expires through the
year 2013, and $8 million of the loss carryforwards has no expiration.

Income taxes paid were $162 million, $1,145 million and $240 million for
1998, 1997 and 1996.

RENTAL EXPENSE AND LEASE COMMITMENTS

Rental and lease expense was $153 million in 1998, $168 million in 1997 and
$175 million in 1996. The company conducts certain operations in leased
facilities and also leases a portion of its data processing and other equipment.
The lease agreements frequently include purchase and renewal provisions and
require the company to pay taxes, insurance and maintenance costs.

F-28
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1998, the company was committed under noncancelable leases
with minimum rentals in succeeding years as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
-------------------
<S> <C>
1999................................................ $ 86
2000................................................ 61
2001................................................ 34
2002................................................ 27
2003................................................ 26
Thereafter.......................................... 129
</TABLE>

DIVESTITURES

In the first quarter of 1998, TI's U.S. DRAM semiconductor manufacturing
joint venture with Hitachi, Ltd. was discontinued as a result of a combination
of severe price declines and overcapacity in the DRAM market. As part of this
first quarter discontinuance, TI purchased the assets of the venture for
approximately $98 million. Also as part of this first quarter discontinuance, TI
and Hitachi decided to assume and share equally in the payment of the venture's
obligations. TI's share of those payments was $219 million, which was paid and
charged to cost of revenues in the first quarter.

In the second quarter of 1998, the company sold its interest in the TI-Acer
DRAM manufacturing joint venture to Acer Corporation for $120 million in cash.
This sale resulted in a pretax gain of $83 million. On September 30, 1998, TI
sold its memory business, including its remaining DRAM manufacturing joint
venture interests in TECH Semiconductor Singapore (TECH) and KTI Semiconductor
in Japan to Micron Technology, Inc. (Micron). As a result, TI received
28,933,092 Micron common shares, a $740 million note convertible into an
additional 12,333,358 Micron common shares and a $210 million subordinated note.
The $740 million face amount Micron convertible note contains an embedded call
option that allows TI to convert the note, at any time prior to its 2005
maturity, into 12,333,358 Micron common shares, at an effective conversion price
equal to $60 per common share. The market value of the seven year, 6.5%
convertible and subordinated note was approximately $836 million at closing,
with an average imputed interest rate of 8.7%. In addition to TI's memory
assets, Micron received $550 million in cash from TI to facilitate the
deployment of Micron's technology throughout the acquired business. In the
fourth quarter of 1998, TI made an additional $130 million payment to Micron as
part of the contractually required working capital. TI deferred the estimated
pretax gain of $127 million on the sale until the recovery of the TI-provided
financing. The deferred gain is subject to change to the extent actual
transaction costs vary from estimates. In connection with the sale, TI agreed to
guarantee the payment obligations of TECH under a newly syndicated $450 million
principal amount credit facility for debt maturing 2002. As of year-end 1998,
TECH had borrowed $240 million under the facility. As a result of the guarantee,
TI was granted a security interest in TECH's assets. In addition, the guarantee
is partially offset by certain contingent funding obligations of TECH's
stockholders. In another matter, approximately $300 million of grants from the
Italian government to TI's former memory operations in Italy are being reviewed
in the ordinary course by government auditors. TI understands that these
auditors are questioning whether some of the grants were applied to purposes
outside the scope of the grants. TI's deferred gain on the sale may be reduced
to the extent that any grants are determined to have been misapplied. Also, TI
understands that an Italian prosecutor is conducting a criminal investigation
concerning a portion of the grants relating to specified research and
development activities. TI believes that the grants were obtained and used in
compliance with applicable law and contractual obligations.

In July, 1997 the company sold its Defense Systems and Electronics business
(DSE) to Raytheon Company for $2.95 billion in cash. The net gain on the sale of
this discontinued operation, after income taxes of $876 million, was $1,473
million. The consolidated financial statements of TI present the DSE

F-29
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

operations as discontinued operations. Summarized results of discontinued
operations prior to the close were as follows:

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
1997 1996
------ --------
<S> <C> <C>
Net revenues................................................ $812 $1,773
Income before provision for income taxes.................... 84 175
Provision for income taxes.................................. 32 66
Income from discontinued operations......................... 52 109
</TABLE>

TI provided various ongoing services to DSE including, but not limited to,
facilities management, data processing, security, payroll and employee benefits
administration, insurance administration and duplicating and telecommunications
services. Their inclusion in discontinued operations was based upon TI's
intercorporate allocation procedures for such services. The allocation basis of
these expenses and all other central operating costs was first on the basis of
direct usage when identifiable, with the remainder allocated among DSE and other
TI businesses on the basis of their respective revenues, head count or other
measures. These expenses allocated to DSE totaled $76 million in 1997 and $163
million in 1996. TI has agreements to receive payments from Raytheon for
continuing to provide certain of these services on an ongoing basis and others
on a transition basis to DSE.

SUBSEQUENT EVENT

On July 15, 1999, the company's Board of Directors declared a two-for-one
stock split effected in the form of a stock dividend that was distributed on
August 16, 1999. All share and per share amounts have been adjusted to reflect
the stock split.

F-30
<PAGE> 122

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS
1ST 2ND 3RD 4TH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998
Net revenues............................................ $2,187 $2,167 $2,113 $1,993
Gross profit............................................ 670 725 791 880
Profit (loss) from operations........................... (22) (38) 189 270
------ ------ ------ ------
Net income.............................................. $ 11 $ 52 $ 155 $ 189
====== ====== ====== ======
Diluted earnings per common share....................... $ .01 $ .07 $ .19 $ .23
====== ====== ====== ======
Basic earnings per common share......................... $ .01 $ .07 $ .20 $ .24
====== ====== ====== ======
1997
Net revenues............................................ $2,263 $2,559 $2,500 $2,428
Gross profit............................................ 791 962 982 948
Profit (loss) from operations........................... 171 287 358 (201)
Income (loss) from continuing operations before
extraordinary item.................................... 102 224 239 (263)
Discontinued operations:
Income from operations................................ 27 25 -- --
Gain on sale.......................................... -- -- 1,473 --
Extraordinary item...................................... -- -- -- (22)
------ ------ ------ ------
Net income (loss)....................................... $ 129 $ 249 $1,712 $ (285)
====== ====== ====== ======
Diluted earnings (loss) per common share:
Continuing operations before extraordinary item....... $ .13 $ .28 $ .30 $ (.34)
Discontinued operations:
Income from operations............................. .03 .03 -- --
Gain on sale....................................... -- -- 1.84 --
Extraordinary item................................. -- -- -- (.03)
------ ------ ------ ------
Net income (loss).................................. $ .16 $ .31 $ 2.14 $ (.37)
====== ====== ====== ======
Basic earnings (loss) per common share:
Continuing operations before extraordinary item....... $ .13 $ .29 $ .31 $ (.34)
Discontinued operations:
Income from operations............................. .04 .04 -- --
Gain on sale....................................... -- -- 1.91 --
Extraordinary item................................. -- -- -- (.03)
------ ------ ------ ------
Net income (loss).................................. $ .17 $ .33 $ 2.22 $ (.37)
====== ====== ====== ======
</TABLE>

At the request of the Securities and Exchange Commission, the results of
operations for the second and third quarters of 1998 have been restated to
reflect the shift of $14 million of pretax manufacturing costs from the second
quarter to the third quarter. The $14 million, which was previously recorded as
part of a $55 million asset write-down in the second quarter, is now reflected
as accelerated depreciation in the third quarter for assets phased out in that
quarter in connection with the winding down of production at a semiconductor
manufacturing facility located in Singapore. This restatement increased net
income and diluted earnings per share by $9 million and $0.01 in the second
quarter, and decreased these items by the same amounts in the third quarter. The
restatement had no impact on the Company's revenues or earnings for the year.

F-31
<PAGE> 123

Results for the first quarter of 1998 include a pretax charge of $219
million, included in cost of revenues, for discontinuance of the Texas
Instruments-Hitachi joint venture and a charge of $25 million for the value of
acquired research and development from two business acquisitions. The second
quarter of 1998 includes a pretax operating charge of $219 million for a
severance/manufacturing efficiency program and a pretax gain of $83 million for
the company's sale of its interest in the Texas Instruments-Acer joint venture.
The third quarter of 1998 includes a pretax operating charge of $14 million
relating to the severance/manufacturing efficiency program implemented during
the second quarter of 1998. Fourth-quarter 1998 results include a pretax
operating charge of $72 million, essentially all of which is for the disposition
of two European operations. In the first quarter of 1997, the company took a
pretax charge of $56 million related to the sale of its mobile computing
business and termination of its digital imaging printing development program.
Results for the second quarter of 1997 include a pretax operating charge of $44
million for the termination of agreements related to proposed Thailand joint
ventures and a $66 million pretax gain from the sale of three divested
activities, principally software. Results for the third quarter of 1997 reflect
the sale of Texas Instruments' defense business, which was closed with Raytheon
Company on July 11 for $2.95 billion in cash. The net gain from this sale, after
income taxes of $876 million, was $1473 million and was included in discontinued
operations. As a result of the 1997 acquisition of Amati Communications
Corporation, the company took a charge of $461 million in the fourth quarter for
the value of acquired in-process research and development. Also in the fourth
quarter, the company took a pretax charge of $42 million, primarily for
severance costs related to cost-reduction actions by the materials & controls
business. Diluted earnings (loss) per common share are based on average common
and dilutive potential common shares outstanding (804,461,398 shares and
779,390,272 shares for the fourth quarters of 1998 and 1997).

F-32
<PAGE> 124

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS,
EXCEPT PER-SHARE
AMOUNTS
FOR SIX MONTHS ENDED
JUNE 30
--------------------
1999 1998
------- -------
<S> <C> <C>
Net revenues................................................ $4,385 $4,353
Operating costs and expenses:
Cost of revenues.......................................... 2,307 2,958
Research and development.................................. 666 634
Marketing, general and administrative..................... 659 821
------ ------
Total............................................. 3,632 4,413
------ ------
Profit (loss) from operations............................... 753 (60)
Other income (expense) net.................................. 143 193
Interest on loans........................................... 37 37
------ ------
Income before provision for income taxes.................... 859 96
Provision for income taxes.................................. 292 33
------ ------
Net income.................................................. $ 567 $ 63
====== ======
Diluted earnings per common share........................... $ .70 $ .08
====== ======
Basic earnings per common share............................. $ .72 $ .08
====== ======
Cash dividends declared per share of common stock........... $ .085 .043
Cash Flows
Net cash provided by operating activities................... $ 526 $ 264
Cash flows from investing activities:
Additions to property, plant and equipment................ (505) (698)
Purchases of short-term investments....................... (970) (664)
Sales and maturities of short-term investments............ 1,260 1,528
Sales of noncurrent investments........................... 172 --
Acquisition of businesses, net of cash acquired........... (382) (152)
Proceeds from sale of businesses.......................... -- 120
------ ------
Net cash provided by (used in) investing activities......... (425) 134
Cash flows from financing activities:
Payments on loans payable................................. -- (4)
Payments on long-term debt................................ (51) (38)
Dividends paid on common stock............................ (67) (66)
Sales and other common stock transactions................. 170 63
Common stock repurchase program........................... (321) (97)
------ ------
Net cash used in financing activities....................... (269) (142)
Effect of exchange rate changes on cash..................... (38) 2
------ ------
Net increase (decrease) in cash and cash equivalents........ (206) 258
Cash and cash equivalents, January 1........................ 540 1,015
------ ------
Cash and cash equivalents, June 30.......................... $ 334 $1,273
====== ======
</TABLE>

F-33
<PAGE> 125

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

<TABLE>
<CAPTION>
MILLIONS OF DOLLARS, EXCEPT
PER-SHARE AMOUNTS
(UNAUDITED)
JUNE 30 DECEMBER 31
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 334 $ 540
Short-term investments.................................... 1,409 1,709
Accounts receivable, less allowance for losses of $61
million in 1999 and $70 million in 1998................ 1,749 1,343
Inventories:
Raw materials.......................................... 89 77
Work in process........................................ 380 354
Finished goods......................................... 220 165
------- -------
Inventories....................................... 689 596
------- -------
Prepaid expenses.......................................... 87 75
Deferred income taxes..................................... 553 583
------- -------
Total current assets.............................. 4,821 4,846
------- -------
Property, plant and equipment at cost....................... 6,626 6,379
Less accumulated depreciation............................. (3,219) (3,006)
------- -------
Property, plant and equipment (net).................... 3,407 3,373
------- -------
Investments................................................. 1,987 2,564
Deferred income taxes....................................... 38 23
Other assets................................................ 794 444
------- -------
Total assets...................................... $11,047 $11,250
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable and current portion long-term debt.......... $ 263 $ 267
Accounts payable.......................................... 554 510
Accrued and other current liabilities..................... 1,261 1,419
------- -------
Total current liabilities......................... 2,078 2,196
------- -------
Long-term debt.............................................. 960 1,027
Accrued retirement costs.................................... 776 895
Deferred income taxes....................................... 264 381
Deferred credits and other liabilities...................... 248 224
Stockholders' equity:
Preferred stock, $25 par value. Authorized -- 10,000,000
shares. Participating cumulative preferred. None
issued................................................. -- --
Common stock, $1 par value. Authorized: 1,200,000,000
shares.
Shares issued: 1999 -- 393,801,640; 1998 -- 392,395,997... 394 392
Paid-in capital........................................... 1,010 1,178
Retained earnings......................................... 5,295 4,795
Less treasury common stock at cost.
Shares: 1999 -- 968,912; 1998 -- 1,716,038................ (108) (134)
Accumulated other comprehensive income.................... 130 296
------- -------
Total stockholders' equity........................ 6,721 6,527
------- -------
Total liabilities and stockholders' equity........ $11,047 $11,250
======= =======
</TABLE>

F-34
<PAGE> 126

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. Share amounts have been retroactively adjusted for the two-for-one stock
split in August 1999. Diluted earnings per common share are based on
average common and dilutive potential common shares outstanding (812.1 and
803.8 million shares for the second quarters of 1999 and 1998, and 810.4
and 801.7 million shares for the six months ended June 30, 1999 and 1998).

2. On July 25, 1999, TI entered into an agreement to purchase Unitrode
Corporation, in a stock-for stock transaction pursuant to which TI will
issue approximately 17.8 million shares of common stock, valued at
approximately $1.2 billion as of July 23, 1999.

3. On May 29, 1999, TI entered into an agreement to purchase Telogy Networks,
Inc. in a stock-for-stock transaction pursuant to which TI will issue
approximately 8.2 million shares of common stock, valued at approximately
$435 million as of June 1, 1999.

4. In connection with TI's acquisition of Libit Signal Processing Ltd. (Libit)
for approximately $365 million in the second quarter of 1999, TI recorded a
charge of $52 million for the value of purchased in-process R&D (purchased
R&D) at the acquisition date, based upon the appraised value of the related
developmental projects. The purchased R&D projects were assessed, analyzed
and valued within the context and framework articulated by the Securities
and Exchange Commission.

Libit's research and development relates to silicon solutions and complex
system level internet telephony software used in cable modems, cable
set-top boxes, cable head-ends and digital television products, which
empower high-speed internet access.

Significant assumptions used in determining the value of purchased R&D for
Libit included projected operating cash flows and the discount rate.
Projected operating cash flows were expected to begin in 2000. The discount
rate selected for Libit's in-process technologies was 22%.

At the time of the acquisition, June 30, 1999, Libit management estimated
the remaining cost and time to complete the purchased R&D projects was $5
million and 492 engineer-months. The term "engineer-month" refers to the
average amount of research work expected to be performed by an engineer in
a month. TI expects to essentially meet its original return expectations.

The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and
uncertain assumptions utilized in the valuation analysis of the in-process
research and development. Such uncertainties could give rise to unforeseen
budget over-runs and/or revenue shortfalls in the event that TI is unable
to successfully complete and commercialize the projects. TI management is
primarily responsible for estimating the value of the purchased R&D in all
acquisitions accounted for under the purchase method.

5. In the second quarter of 1999, the FASB issued SFAS No. 137 which deferred
the effective date of SFAS No. 133 (accounting for derivatives) from 2000
to 2001. In addition, SFAS No. 137 rolled forward the transition date for
the required separation for accounting purposes of an embedded derivative
from its host instrument. The previous transition date was for host
instruments acquired after year-end 1997. The new transition date is for
host instruments acquired after year-end 1998. As a result of these
changes, TI expects to adopt SFAS No. 133 in the first quarter of 2001 on a
cumulative basis. TI's significant embedded derivative, the embedded call
option on Micron Technology, Inc. (Micron) common shares contained in the
company's Micron convertible note investment, will not be separated from
the convertible note because the note was acquired prior to year-end 1998.

6. In the second quarter of 1999, TI reassessed its accounting for its
investment in TI Ventures at the fund's aggregate fair value. The company
has concluded that accounting for the fund based on its investment in each
individual portfolio company is more consistent with TI's current
investment objectives. Accordingly, unrealized gains and losses related to
changes in the fund's aggregate fair

F-35
<PAGE> 127
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

value will no longer be reflected in other income and expense, instead,
changes in individual fair value of these available-for-sale securities
will be recorded as an increase or decrease in stockholders' equity. The
effect of this change is not significant.

7. In the first quarter of 1999, the company announced a consolidation of
semiconductor manufacturing operations in Japan to improve manufacturing
efficiencies and reduce costs. The consolidation is expected to be
completed by the end of the year 2000. The action resulted in a pretax
charge of $14 million in the first quarter, of which $13 million was for
severance for the elimination of 153 jobs in Hatogaya, Japan and $1 million
for other related costs. At June 30, 1999, the pay-out of the severance
cost obligation had not yet begun. Of the $14 million charge, $11 million
was included in cost of revenues and $3 million in marketing, general and
administrative expense.

8. In the first quarter of 1999, sale of the Micron subordinated note and
other securities generated $172 million in cash.

9. In connection with TI's acquisition of Butterfly VLSI, Ltd. (Butterfly) in
the first quarter of 1999, TI recorded a charge of $10 million for the
value of purchased in-process R&D (purchased R&D) at the acquisition date,
based upon the appraised value of the related developmental projects. The
purchased R&D projects were assessed, analyzed and valued within the
context and framework articulated by the Securities and Exchange
Commission.

Butterfly's research and development relates to short distance wireless
semiconductor and systems technology. This technology is used to achieve
higher data rates at 2.4 GHz and above frequencies for use in
voice-plus-data transmission products.

Significant assumptions used in determining the value of purchased R&D for
Butterfly included projected operating cash flows and the discount rate.
Projected operating cash flows were expected to begin in 2000. The discount
rate selected for Butterfly's in-process technologies was 25%.

At the time of the acquisition, Butterfly management estimated the
remaining cost and time to complete the purchased R&D projects to be $5
million and 264 engineer-months. The term "engineer-month" refers to the
average amount of research work expected to be performed by an engineer in
a month. At June 30, 1999, based on the latest available information, the
estimated cost and time to complete the in-process projects was
approximately $8 million and 575 engineer-months. TI expects to essentially
meet its original return expectations.

The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and
uncertain assumptions utilized in the valuation analysis of the in-process
research and development. Such uncertainties could give rise to unforeseen
budget over-runs and/or revenue shortfalls in the event that TI is unable
to successfully complete and commercialize the projects. TI management is
primarily responsible for estimating the value of the purchased R&D in all
acquisitions accounted for under the purchase method.

10. In the second quarter of 1998, the company announced that, as a result of
the various business divestitures over the past several years, the pending
sale of its memory business (subsequently completed in September 1998), and
weakness at that time in the semiconductor market environment, it was
implementing a severance manufacturing efficiency program in order to more
closely match the size and cost of its support functions with the company's
overall size and to further combine manufacturing resources for more
efficient operations. The program, which primarily affected the company's
corporate activities and semiconductor businesses, included the elimination
of 3,441 jobs around the world through voluntary programs, attrition,
outsourcing and layoffs, as well as the closing of several facilities. As a
result, the company took a pretax charge of $219 million in the second
quarter of 1998, of which $126 million was included in marketing, general
and administrative

F-36
<PAGE> 128
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

expense and $93 million in cost of revenues. Of the $219 million charge,
$161 million was for severance, $41 million for asset write-downs and $17
million for vendor cancellation and lease charges.

At June 30, 1999, the program had essentially been completed, with most
severance costs paid except for $22 million, which will primarily be paid
by the end of 1999. Of the 3,441 jobs, 3,381 had been eliminated, and 60
will be eliminated by the end of 1999.

11. In the second quarter of 1998, the company sold its shares in the TI-Acer
DRAM semiconductor manufacturing joint venture to Acer Corporation for $120
million in cash. This sale resulted in a pretax gain of $83 million,
included in other income.

12. In the first quarter of 1998, the company's U.S. DRAM semiconductor
manufacturing joint venture with Hitachi, Ltd. was discontinued as a result
of a combination of severe price declines and overcapacity in the DRAM
market. As a part of this first quarter discontinuance, TI purchased the
assets of the venture for approximately $98 million. Also as part of this
first quarter discontinuance, TI and Hitachi decided to assume and share
equally in the payment of the venture's obligations. TI's share of those
payments was $219 million, which was paid and charged to cost of revenues
in the first quarter.

13. In connection with TI's acquisitions of GO DSP and Spectron, both of which
occurred in the first quarter of 1998, TI recorded charges of $10 million
and $15 million, for purchased in-process R&D (purchased R&D), based upon
the appraised value of the related developmental projects. The Income
Approach, which included an analysis of the markets, cash flows, and risks
associated with achieving such cash flows, was the primary technique
utilized in valuing each purchased R&D project.

GO DSP's and Spectron's research and development related to DSP software
tools. These software tools, which include real-time operating systems
(RTOS), allow DSP systems developers to improve productivity and reduce
time-to-market. TI's goal in these acquisitions was to extend its
leadership in digital signal processing solutions by offering a complete
development environment, simplifying DSP development, and making TI DSP
solutions more attractive for a broad range of fast-growing markets.

Significant assumptions used in determining the value of purchased R&D for
GO DSP and Spectron included projected operating cash flows and the
discount rate. Projected operating cash flows were expected to begin in
late 1998. The discount rate selected for GO DSP's and Spectron's
in-process technologies was 30%.

At the time of the acquisitions, GO DSP and Spectron management estimated
the remaining cost and time to complete the purchased R&D projects was
approximately $7 million and 540 engineer-months. The term "engineer-month"
refers to the average amount of research work expected to be performed by
an engineer in a month. All the in-process projects were essentially
completed on schedule. TI expects to essentially meet its original return
expectations.

F-37
<PAGE> 129
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and
uncertain assumptions utilized in the valuation analysis of the in-process
research and development. Uncertainties regarding projected operating cash
flows could give rise to unforeseen budget over-runs and/or revenue
shortfalls in the event that TI is unable to successfully commercialize the
projects. TI management is primarily responsible for estimating the value
of the purchased R&D in all acquisitions accounted for under the purchase
method.

14. Total comprehensive income, i.e., net income plus investment and pension
liability adjustments to stockholders' equity, for the second quarters of
1999 and 1998 was $147 million and $67 million. For the six months ended
June 30, 1999 and 1998, it was $401 million and $71 million.

15. There has been no significant change in the status of the audit and
investigation concerning grants from the Italian government.

The amount of borrowings by TECH Semiconductor Singapore under its $450
million principal amount credit facility, of which TI is a guarantor, was
$365 million at June 30, 1999, compared to $240 million at year-end 1998.

16. Certain amounts in the prior period's financial statements have been
reclassified to conform to the 1999 presentation.

17. The statement of income, statement of cash flows and balance sheet at June
30, 1999, are not audited but reflect all adjustments which are of a normal
recurring nature and are, in the opinion of management, necessary to a fair
statement of the results of the periods shown.

18. Business segment information is as follows:

<TABLE>
<CAPTION>
MILLION OF DOLLARS

FOR THREE MONTHS FOR SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------- ---------------
1999 1998 1999 1998
------- ------- ------ ------
<S> <C> <C> <C> <C>
BUSINESS SEGMENT NET REVENUES
Semiconductor
Trade............................................ $1,880 $1,530 $3,544 $3,123
Intersegment..................................... 3 5 12 10
------ ------ ------ ------
1,883 1,535 3,556 3,133
------ ------ ------ ------
Materials & Controls
Trade............................................ 256 245 502 487
Intersegment..................................... -- -- -- --
------ ------ ------ ------
256 245 502 487
------ ------ ------ ------
Educational & Productivity Solutions
Trade............................................ 153 165 234 240
Corporate activities............................... 40 45 62 93
Divested activities................................ 14 177 31 400
------ ------ ------ ------
Total.................................... $2,346 $2,167 $4,385 $4,353
====== ====== ====== ======
</TABLE>

F-38
<PAGE> 130
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

<TABLE>
<CAPTION>
MILLION OF DOLLARS
FOR THREE MONTHS FOR SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------- ---------------
1999 1998 1999 1998
------- ------- ------ ------
<S> <C> <C> <C> <C>
BUSINESS SEGMENT PROFIT (LOSS)
Semiconductor...................................... $ 485 $ 382 $ 824 $ 740
Materials & Controls............................... 42 37 83 73
Educational & Productivity Solutions............... 43 37 53 38
Corporate activities............................... (81) (53) (155) (97)
Special charges and gains, net of applicable profit
sharing.......................................... (45) (136) (70) (380)
Interest on loans/other income, excluding a second
quarter 1998 gain of $83 million included
above............................................ 45 34 105 73
Divested activities................................ 11 (222) 19 (351)
------ ------ ------ ------
Income before provision for income taxes........... $ 500 $ 79 $ 859 $ 96
====== ====== ====== ======
</TABLE>

19. The following is a detailed reconciliation of individual restructuring
accruals (in millions of dollars).

YEAR OF CHARGE

<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------- --------------------- ----------
RESERVES SC
DIVESTITURE M&C AGAINST SC OPERATION SC
OF MCB/ COST GAINS ON AND CLOSING & OPERATION
TERMINATION REDUCTION BUSINESS CORP. M&C SALE OF CLOSING IN
DESCRIPTION* TOTAL OF DIPD ACTION SALES ACTIONS OPERATION JAPAN
------------ ----- ----------- --------- -------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998........ $163 $16 $21 $24 $ 49 $ 53
Charges:
Severance...................... 13 $13
Vendor and warranty
obligations.................. 1 1
Dispositions:
Severance payments............. (41) (4) (1) (16) (20)
Vendor and warranty obligation
payments..................... (1) (1)
Adjustments -- net reversal to
income....................... (3) (3)
---- --- --- --- ---- ---- ---
BALANCE MARCH 31, 1999........... 132 15 17 23 30 33 14
Dispositions:
Severance payments............. (9) (3) (5) (1)
Various payments............... (8) (8)
Adjustments -- net reversal to
income....................... (5) (2) (3)
---- --- --- --- ---- ---- ---
BALANCE, JUNE 30, 1999........... $110 $15 $12 $23 $ 22 $ 24 $14
==== === === === ==== ==== ===
</TABLE>

* Abbreviations

<TABLE>
<S> <C> <C>
SC = Semiconductor Business
MCB = Mobile Computing Business
DIPD = Digital Imaging Printing Development Program
Corp. = Corporate Division
</TABLE>

F-39
<PAGE> 131

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Power Trends, Inc.:

We have audited the accompanying balance sheets of POWER TRENDS, INC. (an
Illinois corporation) as of June 30, 1999 and 1998, and the related statements
of income, changes in convertible redeemable preferred stock and common
stockholders' deficit and cash flows for each of the three years in the period
ended June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Power Trends, Inc. as of
June 30, 1999 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1999, in conformity with
generally accepted accounting principles.

[Arthur Andersen LLP signature]

ARTHUR ANDERSEN LLP

Chicago, Illinois
October 14, 1999

F-40
<PAGE> 132

POWER TRENDS, INC.

BALANCE SHEETS
JUNE 30, 1999 AND 1998

<TABLE>
<CAPTION>
ASSETS
1999 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,691,380 $ 882,229
Accounts receivable, less allowance for doubtful accounts
of $81,000 and $45,000 at June 30, 1999 and 1998,
respectively........................................... 5,841,557 3,478,696
Inventory................................................. 4,245,652 4,201,176
Prepaid expenses and other assets......................... 455,593 123,182
Deferred income tax asset................................. 358,279 0
----------- ------------
Total current assets.............................. 13,592,461 8,685,283
----------- ------------
Equipment and leasehold improvements:
Equipment under capital leases............................ 1,900,799 1,681,784
Furniture, fixtures and equipment,........................ 7,698,310 5,618,288
Leasehold improvements.................................... 802,323 330,997
----------- ------------
10,401,432 7,631,069
----------- ------------
Less -- Accumulated depreciation and amortization......... 5,117,220 3,701,547
----------- ------------
5,284,212 3,929,522
----------- ------------
Deposits.................................................... 97,483 80,370
----------- ------------
Patents, net of accumulated amortization of $47,107 and
$32,695 at June 30, 1999 and 1998, respectively........... 143,627 108,727
----------- ------------
Deferred income tax asset................................... 138,981 0
----------- ------------
$19,256,764 $ 12,803,902
=========== ============

LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable.......................................... $ 3,125,761 $ 2,177,378
Accrued expenses and other liabilities.................... 930,639 611,081
Income taxes payable...................................... 275,500 0
Obligations under capital leases -- current............... 70,584 72,530
Term notes payable -- current............................. 1,438,007 804,416
----------- ------------
Total current liabilities......................... 5,840,491 3,665,405
----------- ------------
Term notes payable.......................................... 1,570,155 2,040,069
----------- ------------
Obligations under capital leases............................ 37,561 108,145
----------- ------------
Convertible redeemable preferred stock...................... 19,769,706 18,305,284
----------- ------------
Common stockholders' deficit:
Common stock, no par value; 17,000,000 shares authorized;
2,849,611 and 2,794,478 shares issued and outstanding
as of June 30, 1999 and 1998, respectively............. 394,383 342,497
Additional paid-in capital................................ 17,917 17,917
Accumulated deficit....................................... (8,373,449) (11,675,415)
----------- ------------
Total common stockholders' deficit................ (7,961,149) (11,315,001)
----------- ------------
$19,256,764 $ 12,803,902
=========== ============
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-41
<PAGE> 133

EXHIBIT 2

POWER TRENDS, INC.

STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................. $39,014,683 $28,005,557 $18,408,118
Cost of goods sold.................................... 24,786,817 18,282,405 11,916,126
----------- ----------- -----------
Gross profit................................ 14,227,866 9,723,152 6,491,992
----------- ----------- -----------
Operating expenses:
General and administrative.......................... 1,232,920 981,421 799,438
Research and development............................ 3,157,828 2,317,224 1,728,003
Selling and marketing............................... 4,588,338 3,865,591 3,011,180
----------- ----------- -----------
Total operating expenses.................... 8,979,086 7,164,236 5,538,621
----------- ----------- -----------
Income from operations...................... 5,248,780 2,558,916 953,371
----------- ----------- -----------
Other income (expense):
Interest income..................................... 63,224 30,454 42,916
Interest expense.................................... (279,159) (272,210) (204,222)
----------- ----------- -----------
Total other expense......................... (215,935) (241,756) (161,306)
----------- ----------- -----------
Income before income taxes.................. 5,032,845 2,317,160 792,065
Income tax provision.................................. 242,092 60,266 10,160
----------- ----------- -----------
Net income............................................ $ 4,790,753 $ 2,256,894 $ 781,905
=========== =========== ===========
Basic and diluted earnings per share:
Income before preferred stock accretion............... $ 4,791 $ 2,257 $ 782
Less: Preferred stock accretion....................... (8,974) (7,509) (6,153)
----------- ----------- -----------
Net loss available to common stockholders............. (4,183) (5,252) (5,371)
Net loss per basic and diluted common share........... (1.48) (1.89) (1.96)
Weighted-average number of basic and diluted common
shares outstanding.................................. 2,820 2,786 2,741
</TABLE>

The accompanying notes are an integral part of these statements.

F-42
<PAGE> 134

POWER TRENDS, INC.

STATEMENTS OF CHANGES IN CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
COMMON STOCKHOLDERS' DEFICIT
----------------------------------------------------------------
CONVERTIBLE COMMON STOCK
REDEEMABLE ISSUED AND
PREFERRED STOCK OUTSTANDING ADDITIONAL
--------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ----------- --------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996...... 125,740 $15,701,720 2,734,354 $315,960 $17,917 $(12,110,650) $(11,776,773)
Issuance of common
stock.................. 0 0 26,999 8,943 0 0 8,943
Accretion of redemption
value.................. 0 1,247,617 0 0 0 (1,247,617) (1,247,617)
Net income................ 0 0 0 0 0 781,905 781,905
------- ----------- --------- -------- ------- ------------ ------------
Balance, June 30, 1997...... 125,740 $16,949,337 2,761,353 $324,903 $17,917 $(12,576,362) $(12,233,542)
Issuance of common
stock.................. 0 0 33,125 17,594 0 0 17,594
Accretion of redemption
value.................. 0 1,355,947 0 0 0 (1,355,947) (1,355,947)
Net income................ 0 0 0 0 0 2,256,894 2,256,894
------- ----------- --------- -------- ------- ------------ ------------
Balance, June 30, 1998...... 125,740 18,305,284 2,794,478 342,497 17,917 (11,675,415) (11,315,001)
Issuance of common
stock.................. 0 0 55,133 51,886 0 0 51,886
Warrant repurchase........ 0 0 0 0 0 (24,365) (24,365)
Accretion of redemption
value.................. 0 1,464,422 0 0 0 (1,464,422) (1,464,422)
Net income................ 0 0 0 0 0 4,790,753 4,790,753
------- ----------- --------- -------- ------- ------------ ------------
Balance, June 30, 1999...... 125,740 $19,769,706 2,849,611 $394,383 $17,917 $ (8,373,449) $ (7,961,149)
======= =========== ========= ======== ======= ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-43
<PAGE> 135

POWER TRENDS, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 4,790,753 $ 2,256,894 $ 781,905
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization.................... 1,430,087 1,142,593 856,619
Deferred taxes................................... (497,260) 0 0
Loss on sale of equipment........................ 0 1,751 118
Provision for doubtful accounts.................. 36,000 10,000 0
Provision for obsolete inventory................. 52,500 0 37,500
Provision for warranty reserve................... 48,000 0 0
Provision for distributor gross profit reserve... 70,000 10,000 0
(Increase) decrease in --
Accounts receivable............................ (2,398,861) (544,047) (1,675,337)
Inventory...................................... (96,976) (1,472,719) (871,275)
Prepaid expenses and other assets.............. (332,411) (95,761) 33,816
Deposits....................................... (17,113) 1,447 13,945
Increase (decrease) in --
Accounts payable............................... 948,383 (94,588) 1,721,014
Accrued expenses and other liabilities......... 477,058 140,755 (8,337)
----------- ----------- -----------
Net cash provided by operating activities... 4,510,160 1,356,325 889,968
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment..................... 0 9,500 2,450
Acquisition of equipment............................ (2,770,365) (1,931,735) (1,716,448)
Acquisition of patents.............................. (49,312) (31,787) (28,722)
Acquisition of equipment under capital leases:...... (216,565)
----------- ----------- -----------
Net cash used in investing activities....... (2,819,677) (1,954,022) (1,959,285)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 51,886 17,594 8,943
Warrant repurchase.................................. (24,365) 0 0
Proceeds from long-term debt obligations............ 1,000,000 1,919,117 1,831,206
Repayments of long-term debt obligations............ (836,323) (1,181,809) (1,214,045)
Repayments of capital lease obligations............. (72,530) (119,299) (177,145)
Proceeds from capital lease obligations............. 216,565
----------- ----------- -----------
Net cash provided by financing activities... 118,668 635,603 665,524
----------- ----------- -----------
Net increase in cash and cash equivalents............. 1,809,151 37,906 (403,793)
Cash and cash equivalents, beginning of year.......... 882,229 844,323 1,248,116
----------- ----------- -----------
Cash and cash equivalents, end of year................ $ 2,691,380 $ 882,229 $ 844,323
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-44
<PAGE> 136

POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 1999, 1998 AND 1997

1. DESCRIPTION OF BUSINESS

Power Trends, Inc. (the Company) was founded in September, 1987, and
designs, manufactures and markets plug-in power modules (integrated switching
regulators) for advanced computer, data communications and industrial
applications in the high-technology industry.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash equivalents include short-term investments stated at cost. The Company
generally considers short-term investments with a maturity of 100 days or less
at the date of purchase to be cash equivalents for purposes of the statements of
cash flows.

Inventory

Inventory is stated at the lower of cost, determined on the first-in,
first-out basis, or market.

The components of inventory as of June 30, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
JUNE 99 JUNE 98
ACTUAL ACTUAL
--------- ---------
<S> <C> <C>
Raw Materials............................................... 3,302,432 3,252,864
Work in Process............................................. 302,417 454,757
Finished Goods.............................................. 795,803 596,055
Obsolete Reserve............................................ (155,000) (102,500)
--------- ---------
Total Inventory................................... 4,245,652 4,201,176
</TABLE>

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost and are being
depreciated over the estimated useful lives of the assets or lease terms using
primarily the straight-line method. The estimated useful lives for equipment
range from three to five years.

Patents

The cost of patents is being amortized using the straight-line method over
their estimated useful lives of 10 years.

Revenue Recognition

Revenue for product sales are recognized at the time the product is shipped
from the Company's warehouse.

Product Warranties

Most of the Company's products carry a limited warranty ranging from 90
days to one year. The Company accrues for estimated warranty costs as products
are shipped.

F-45
<PAGE> 137
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Supplemental Cash Flow Disclosures

The following represents supplemental disclosures to the consolidated
statements of cash flows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Schedule of noncash investing and financing
activities --
Accretion of redemption value of convertible
redeemable preferred stock.................. $1,464,422 $1,355,947 $1,247,617
Cash paid for --
Interest....................................... 279,159 272,210 204,222
Income taxes................................... 509,888 21,776 0
---------- ---------- ----------
</TABLE>

Concentration of Credit Risk

Financial instruments which potentially subject the Company to a
concentration of credit risk consist primarily of receivables. The Company
extends credit to its customers based upon an evaluation of the customer's
financial condition and credit history. Management believes the two significant
customers described below were financially sound companies based upon published
data as of December 31, 1998.

For the year ended June 30, 1999, approximately 19% of the Company's net
sales were obtained from one large national customer. Additionally,
approximately 22.6% of the Company's June 30, 1999 receivables were from this
customer.

For the year ended June 30, 1998, approximately 11% of the Company's net
sales were obtained from one large national customer. Additionally,
approximately 7.7% of the Company's June 30, 1998, receivables were from this
customer.

For the year ended June 30, 1997, approximately 32% of the Company's net
sales were obtained from one large national customer.

Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument held by the Company:

CURRENT ASSETS AND CURRENT LIABILITIES -- The carrying value approximates
fair value due to the short maturity of these items.

LONG-TERM DEBT -- Since the Company's debt is not quoted, estimates are
based on each obligation's characteristics, including remaining maturities,
interest rate, credit rating, collateral, amortization schedule and liquidity.
The carrying amount approximates fair value.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Computation of Net Loss Per Share

In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 which requires companies to present basic and diluted earnings per
share effective for financial statements issued

F-46
<PAGE> 138
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

for periods ending after December 15, 1997. The computation of basic earnings
per share is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share includes the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The effect of this computation on the
number of outstanding shares is antidilutive for the periods ended June 30,
1997, 1998 and 1999, and therefore the net loss per basic and diluted earnings
per share are the same.

New Accounting Pronouncements

In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires the reporting and display of
comprehensive income and its components, in a full set of general-purpose
financial statements. In addition to net income, comprehensive income includes
all non-owner changes in equity. SFAS No. 130 is effective for financial
statements for fiscal years beginning after December 15, 1997, and
reclassification of financial statements for earlier periods for comparative
purposes is required. Due to net income being the only comprehensive income item
for the Company, the Company does not believe that any additional disclosures
are required as a result of adopting this pronouncement.

In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivation
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments. SFAS No. 133 is effective for financial statements for
the Company's fiscal year ending June 30, 2001. The Company does not expect that
SFAS No. 133 will have a significant effect on its current financial reporting.

F-47
<PAGE> 139
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

3. LONG-TERM DEBT

Long-term debt at June 30, 1999 and 1998, is as follows:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Lease purchase obligations payable in monthly installments
of $5,888 including interest at 15.8% through January,
2001........................................................ $ 108,145 $ 180,675
Term notes --
Term note payable under equipment facility, due in monthly
installments of $18,451 including accrued interest at
8.35% and 8.75% at June 30, 1999 and 1998,
respectively, with a final maturity on January 17, 2000
(see Note 13 for further discussion regarding final
maturity).............................................. 500,612 669,537
Term note payable, due in monthly installments of $3,828
including accrued interest at 8.35% and 8.75% at June
30, 1999 and 1998, respectively, with a final maturity
on January 17, 2000 (see Note 13 for further discussion
regarding final maturity).............................. 66,472 104,667
Term note payable, due in monthly installments of $19,948
including accrued interest at 8.35% and 8.75% at June
30, 1999 and 1998, respectively, with a final maturity
on June 17, 2000 (see Note 13 for further discussion
regarding final maturity).............................. 431,743 623,605
Term note payable under equipment facility, due in monthly
installments of $4,244 including accrued interest at
8.35% and 8.75% at June 30, 1999 and 1998,
respectively, with a final maturity on October 17, 2000
(see Note 13 for further discussion regarding final
maturity).............................................. 144,726 181,094
Term note payable under equipment facility, due in monthly
installments of $22,645 including accrued interest at
8.35% and 8.75% at June 30, 1999 and 1998, with a final
maturity on May 17, 2003 (see Note 13 for further
discussion regarding final maturity)................... 895,759 1,079,367
Term note payable under equipment facility, due in monthly
installments of $22,340 including accrued interest at
7.75% at June 30, 1999, with a final maturity on
October 17, 2003 (see Note 13 for further discussion
regarding final maturity).............................. 968,849 0
Subordinated term note, principal payable in monthly
installments of $16,610 including accrued interest at
12.75% with a final maturity date of June 1, 1999...... 0 186,215
---------- ----------
Total long-term debt.............................. 3,116,306 3,025,160
Less -- Current portion of long-term debt................... 1,508,591 876,946
---------- ----------
$1,607,715 $2,148,214
========== ==========
</TABLE>

F-48
<PAGE> 140
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

The principal portion of long-term debt becomes due as follows:

<TABLE>
<CAPTION>
LOAN CAPITALIZED
OBLIGATIONS LEASES COMBINED
----------- ----------- ----------
<S> <C> <C> <C>
Fiscal year ending --
2000............................................ $1,438,007 $ 70,584 $1,508,591
2001............................................ 540,179 37,561 577,740
2002............................................ 472,351 0 472,351
2003............................................ 488,618 0 488,618
2004............................................ 69,006 0 69,006
---------- -------- ----------
Total................................... $3,008,161 $108,145 $3,116,306
========== ======== ==========
</TABLE>

Term Notes Payable

On April 17, 1999, the Company renewed its equipment facility. The
equipment facility allows the Company to borrow up to an aggregate principal
amount of $1,000,000, and expires on October 17, 2000. Under the terms of the
agreement, all borrowings are transferred to term notes before or at the
expiration of the facility, and charge interest at prime plus .10% (7.85% at
June 30, 1999). Equipment financed under these term notes is used as collateral
until the associated debt is paid in full. See Note 13 for further discussion
regarding the maturity of the term notes outstanding at June 30, 1999.

Revolving Line of Credit

On April 17, 1999, in addition to the equipment facility, the Company
renewed its revolving line-of-credit facility agreement with the same bank. The
revolving line of credit is limited to $1,000,000, with interest payable in
monthly installments at prime plus .10% (7.85% at June 30, 1999). The revolving
line of credit expires on September 17, 1999, and is renewable annually. All
borrowings are secured by the Company's equipment, fixtures, inventory, accounts
receivable and general intangibles. As of June 30, 1998, the Company had a
$74,850 letter of credit outstanding on this revolving line of credit. At June
30, 1999, the Company was no longer required to maintain the $74,850 letter of
credit for its building lessor due to the Company achieving certain performance
measures as described in the lease agreement.

4. CONVERTIBLE REDEEMABLE PREFERRED STOCK

Convertible redeemable preferred stock is stated at its original cost plus
the accretion of its redemption value and consists of the following at June 30,
1999, 1998 and 1997:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Series A-1, no par value; 17,500 shares
authorized, issued and outstanding,
convertible to common stock at $.40 per
share......................................... $ 1,565,238 $ 1,449,295 $ 1,341,940
Series A-2, no par value; 10,000 shares
authorized, issued and outstanding,
convertible to common stock at $.70 per
share....................................... 1,501,740 1,390,500 1,287,500
Series A-3, no par value; 6,250 shares
authorized, issued and outstanding,
convertible to common stock at $.80 per
share....................................... 1,014,837 939,664 870,059
Series A-4, no par value; 77,050 shares
authorized; 66,375 shares issued and
outstanding, convertible at $.80 per
share....................................... 10,050,580 9,306,093 8,616,753
</TABLE>

F-49
<PAGE> 141
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Series B-1, no par value; 27,000 shares
authorized and 25,615 shares issued and
outstanding, convertible at $1.40 per share... 5,637,311 5,219,732 4,833,085
----------- ----------- -----------
$19,769,706 $18,305,284 $16,949,337
=========== =========== ===========
</TABLE>

Conversion prices are subject to change from time to time to prevent
dilution of the conversion rights. The Company may require the conversion of all
of the outstanding preferred stock upon the closing of a firm commitment
underwritten public offering, as defined. At June 30, 1999, 1998 and 1997, each
share of preferred stock was convertible into 100 shares of common stock.

Each holder of preferred stock may require the Company to redeem all or
part of their preferred stock held. The redemption price/liquidation value per
share will be equal to the purchase price of the stock, plus 8% compounded
annually from the date of issuance until the date of redemption/liquidation,
plus any accrued but unpaid dividends. In the event of liquidation, dissolution
or winding up of the Company, if proceeds available for distribution to the
Company's stockholders are $6.40 or less per share of common stock, then the
preferred stockholders are entitled to an involuntary liquidation preference
equal to the liquidation value, as defined. As of June 30, 1999, no preferred
stock was redeemed.

The holders of preferred stock share pro rata with the common stockholders
(based on an as-if-converted basis) in all dividends and distributions.
Additionally, they are entitled to vote on all matters submitted to a vote of
the Company's stockholders, with each share of preferred stock having voting
rights equivalent to the number of shares of common stock issuable upon
conversion. Holders of preferred stock are entitled to acquire the same
aggregate purchase rights granted to common stockholders.

As long as 5,000 shares of preferred stock remain outstanding, the Company
must comply with certain restrictions and limitations and obtain consent of
holders of a majority of the shares of the preferred stock prior to entering
into certain transactions and agreements, including declaring or paying
dividends on junior securities.

The Company entered into a put agreement with redeemable preferred
stockholders (Investors) whereby those Investors who own (alone or together with
the other Investors) 20% of the common stock (on an as-if-converted basis) have
the right to require the Company to purchase all or any portion of their
preferred stock of the Company on or after January 20, 2000, at a price based on
the Company's fair market value, as defined. If the Company cannot purchase all
of the put shares with immediately available funds, then the Investor may either
completely rescind all or part of the put, or sell the put shares to the Company
in exchange for a put note bearing interest at prime plus 4% annually. The put
agreement will terminate on the closing of a qualified public offering, as
specified in the put agreement.

F-50
<PAGE> 142
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

5. COMMON STOCK

As of June 30, 1999 and 1998, common stock consists of the following:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Authorized shares............................. 17,000,000 17,000,000 16,500,000
Issued and outstanding........................ (2,849,611) (2,794,478) (2,761,353)
----------- ----------- -----------
14,150,389 14,205,522 13,738,647
=========== =========== ===========
Reserved for issuance --
Conversion of preferred stock............... (12,574,000) (12,574,000) (12,574,000)
Long-term incentive plan.................... (385,308) (659,894) (54,519)
Exercise of warrants........................ (30,833) (155,833) (305,833)
Exercise of stock options................... (1,038,420) (815,795) (804,295)
----------- ----------- -----------
(14,028,561) (14,205,522) (13,738,647)
----------- ----------- -----------
Unreserved shares............................. 121,828 0 0
=========== =========== ===========
</TABLE>

6. EXECUTIVE STOCK AND EMPLOYMENT AGREEMENTS

The Company has executive stock and employment agreements with certain
employees and consultants of the Company. The agreements stipulate that the
common stock owned by the employees vest pursuant to a time vesting schedule.
The vesting schedule is used in determining the Company's repurchase price per
share under a repurchase option. In the event of a sale of the Company, as
defined, the vesting schedule will accelerate so that all stock vests as of the
closing of such sale.

Under the terms of the executive stock and employment agreements, executive
stock is subject to certain restrictions, including but not limited to
transferability and voting rights. Additionally, the executives are subject to
noncompete covenants.

At June 30, 1999, the executives collectively owned 1,035,360 shares of
stock. As of June 30, 1999, all shares have vested under this agreement.

7. INCENTIVE PLANS

The Company has established a long-term incentive stock plan which allow
the Company's Board of Directors to make grants of restricted stock,
nonqualified stock options, and incentive stock options to individuals as
selected by the Board of Directors.

All restricted stock or options awarded under the following plans are
subject to certain restrictions including, but not limited to, transferability
and repurchase in favor of the Company, as defined within the plans. Restricted
stock awards are additionally subject to voting right restrictions.

The Company accounts for employee stock options under APB Opinion 25, as
permitted under generally accepted accounting principles. Accordingly, no
compensation cost has been recognized in the accompanying financial statements
related to these options. Had compensation cost for these options been
determined consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which is an accounting
alternative that is permitted but not required, the Company's net income would
not have been materially different.

The fair value of each option is estimated on the date of grant based on
the Black-Scholes option pricing model assuming, among other things, a risk-free
interest rate of 5.2%, no dividend yield or volatility factor, and an expected
life of approximately three years. A majority of the options granted to
employees vest ratably over four years.

F-51
<PAGE> 143
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

The stock option activity under the Company's Stock Incentive Plan covering
nonqualified stock option and incentive stock options are as follows:

<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Outstanding at June 30, 1996.............................. 681,753 $0.245
Granted................................................. 186,000 0.350
Exercised............................................... (7,499) 0.282
Canceled................................................ (55,959) 0.345
--------- ------
Outstanding at June 30, 1997.............................. 804,295 0.262
Granted................................................. 26,500 0.537
Exercised............................................... (3,125) 0.350
Canceled................................................ (11,875) 0.350
--------- ------
Outstanding at June 30, 1998.............................. 815,795 0.269
Granted................................................. 238,000 0.650
Exercised............................................... (13,375) 0.213
Canceled................................................ (2,000) 0.200
--------- ------
Outstanding at June 30, 1999.............................. 1,038,420 0.357
</TABLE>

Restricted Stock Agreement

The restricted stock purchase agreements granted under the long-term
incentive stock plan provide ownership incentives to key employees of the
Company and members of its Board of Directors and allow participants to purchase
shares of common stock. Restricted stock vests pursuant to a time vesting
schedule and becomes fully vested in the event of a sale of the Company. The
vesting schedule is used to determine the Company's repurchase price per share
under a repurchase option. As of June 30, 1999, 1,814,251 shares have been
issued at fair market value, with prices ranging from $.05 to $1.35 per share.
At June 30, 1999, 1,741,206 shares have vested under this plan.

Nonqualified Stock Options

As of June 30, 1999, the Company has nonqualified stock options outstanding
to acquire 208,482 shares with exercise prices ranging from $.10 to $.65 per
share. These options have been issued at fair market value and vest pursuant to
a time vesting schedule. All options vest in the event of a sale of the Company,
as defined by the plan. As of June 30, 1999, all options have vested under this
plan.

Incentive Stock Options

As of June 30, 1999, the Company has issued incentive stock options to
acquire 829,938 shares with exercise prices ranging from $.20 to $1.35 per
share. These options have been issued at fair market value and vest pursuant to
a time vesting schedule. All options vest in the event of a sale of the Company,
as defined by the plan. As of June 30, 1999, 571,813 options have vested under
this plan.

8. WARRANTS

On January 15, 1991, the Company entered into a lease financing arrangement
that allowed the Company to finance amounts for future equipment acquisitions.
As part of this transaction, the Company granted a warrant to the lessor on
January 15, 1991, to purchase up to 150,000 shares of the Company's common
stock. The warrant expired on January 15, 1998.

F-52
<PAGE> 144
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

On April 29, 1992, the Company obtained additional financing under the
lease financing arrangement described above and issued a warrant to purchase an
additional 125,000 shares of common stock at an exercise price of $.80 per
share. The warrant expired in April, 1999, and had certain transfer
restrictions, which include being subject to a first refusal right by the
Company. The Company exercised its first refusal right and purchased the warrant
from the holder for $24,365, and subsequently allowed the warrant to expire.

On June 7, 1996, the Company entered into a new lease financing
arrangement. As part of this transaction, the Company granted a warrant to the
lessor on June 7, 1996, to purchase up to 5,833 shares of the Company's common
stock at an exercise price of $3.00 per share. The warrant is exercisable at any
time within 10 years of the issue date or 5 years from the effective date of the
Company's initial public offering, whichever is longer. As part of the new
financing lease arrangement, the Company entered into a subordinated term note
with the lender, discussed in Note 3. As part of this transaction, the Company
granted a warrant to the lender to purchase up to 25,000 shares of the Company's
common stock at an exercise price of $3.00 per share. The warrant is exercisable
at any time within 10 years of the issue date or 5 years from the effective date
of the Company's initial public offering, whichever is longer.

9. REGISTRATION AGREEMENT

The Company has a registration agreement with certain of its preferred
stockholders to use its best efforts to register any common stock issued upon
the conversion of preferred stock at the request of at least 10% of the
stockholders. The agreement is exercisable on of after January 20, 2000. All
expenses of this registration, except as provided in the agreement, will be paid
by the Company.

10. COMMITMENTS AND CONTINGENCIES

Operating Lease

During October, 1995, the Company entered into an operating lease agreement
for office and warehouse space which is scheduled to expire on May 31, 2006. The
lease requires the Company to pay real estate taxes, assessments and liability
insurance premiums for the benefit of the landlord as well as certain
maintenance expenses related to the facilities. In accordance with the
agreement, the Company made a deposit to the lessor for $74,850.

During January, 1999, the Company entered into a operating sublease
agreement for warehouse space which is scheduled to expire on June 29, 2007. The
lease requires the Company to pay an annual licensing fee in the amount of
$25,000, real estate taxes, assessments and liability insurance premiums for the
benefit of the landlord as well as certain maintenance expenses related to the
facilities.

Future minimum payments under all operating leases as of June 30, 1999, are
as follows:

<TABLE>
<S> <C>
2000.................................................... $ 435,259
2001.................................................... 445,184
2002.................................................... 455,409
2003.................................................... 476,673
2004.................................................... 487,498
Thereafter.............................................. 1,462,594
----------
$3,762,617
==========
</TABLE>

Total rent expense for years ended June 30, 1999, 1998 and 1997, was
approximately $385,912, $332,119 and $344,654, respectively.

F-53
<PAGE> 145
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

The Company routinely enters into noncancelable purchase commitments for
certain inventory items. As of June 30, 1999, the Company has outstanding
commitments of approximately $7,493,126.

11. INCOME TAXES

The Company records income taxes in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 utilizes the liability method and deferred taxes are determined
based upon the estimated future tax effects of differences between the financial
statement and tax basis of assets and liabilities given the provisions of the
enacted tax laws. In adopting SFAS No. 109, the Company determined that the
previously unrecognized tax benefits did not satisfy the recognition criteria
set forth in the standard. Accordingly, as of June 30, 1998 and 1997, a
valuation allowance of $1,794,068 and $2,199,802, respectively, remained
recorded against the deferred tax assets. For the year ended June 30, 1999, the
net operating loss carryforwards and tax credit carryforwards have been fully
utilized, and the deferred tax assets have been recorded on the Company's
accompanying June 30, 1999, balance sheet.

The provision for income taxes included in the accompanying statements of
income consists of the following:

<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Currently payable --
Federal.......................................... $ 589,352 $60,266 $10,160
State............................................ 150,000 0 0
Deferred provision............................... (497,260) 0 0
--------- ------- -------
Total provision.......................... $ 242,092 $60,266 $10,160
========= ======= =======
</TABLE>

The statutory federal income tax rate is reconciled to the Company's
effective income tax rates below:

<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 34.0% 34.0% 34.0%
Permanent differences....................................... (2.3) 1.0 1.0
State income tax, net of federal tax effect................. 4.8 4.8 4.8
Reduction in valuation allowance due to utilization of net
operating loss carryforwards and tax credit
carryforwards............................................. (35.6) (37.2) (38.5)
Other....................................................... 3.9 0.0 0.0
----- ----- -----
Effective tax rate................................ 4.8% 2.6% 1.3%
===== ===== =====
</TABLE>

F-54
<PAGE> 146
POWER TRENDS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

The significant temporary differences which comprise deferred tax assets
and liabilities are as follows at June 30, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
1999 1998 1997
-------- ----------- -----------
<S> <C> <C> <C>
Deferred income tax assets --
Current --
Reserves..................................... $213,012 $ 197,313 $ 145,550
Other nondeductible accruals................. 121,799 70,344 48,306
Unicap....................................... 23,468 24,798 24,600
Valuation allowance.......................... 0 (292,455) (218,456)
-------- ----------- -----------
Total net current deferred income tax
assets................................ $358,279 $ 0 $ 0
======== =========== ===========
Long-term --
Net operating loss carryforwards............. $ 0 $ 1,013,726 $ 2,249,547
Investment tax credit carryforwards.......... 0 266,403 (276,114)
Depreciation................................. 147,014 225,871 12,300
Miscellaneous................................ (8,033) (4,387) (4,387)
Valuation allowance.......................... 0 (1,501,613) (1,981,346)
-------- ----------- -----------
Total net long-term deferred income tax
assets................................ $138,981 $ 0 $ 0
======== =========== ===========
</TABLE>

12. EMPLOYEE BENEFIT PLAN

401(k) Plan

Effective April 1, 1995, the Company established a voluntary contributory
401(k) plan which allows eligible employees to participate after working 1,000
hours during a calendar year. The plan allows participants to contribute
annually up to 15% of their total compensation on a pretax basis, not to exceed
the IRS calendar year maximum, and up to an additional 10% of total compensation
on an after-tax basis. Under the plan, the Company's matching contributions are
discretionary, as determined by the Board of Directors. Company 401(k) matching
contributions totaled $94,173, $33,131 and $26,245 for the years ended June 30,
1999, 1998 and 1997, respectively.

13. SUBSEQUENT EVENT

The Company is in the process of negotiating with a bank to refinance all
outstanding term notes as of June 30, 1999 (see Note 3), into one consolidated
term loan. The Company anticipates that the new consolidated loan agreement will
have similar terms and conditions as the previous individual term notes.

F-55
<PAGE> 147

EXHIBIT 2

ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

MERGER AGREEMENT

DATED AS OF SEPTEMBER 29, 1999

BY AND AMONG

TEXAS INSTRUMENTS INCORPORATED,

POWER ACQUISITION CORP.,

AND

POWER TRENDS, INC.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 148

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
Article 1 Definitions...................................................... 1
Article 2 The Transaction.................................................. 2
2.1 Merger........................................................... 2
2.2 Closing.......................................................... 2
2.3 Closing Events................................................... 2
(a) Plan and Articles of Merger................................. 2
(b) Deliveries by the Company................................... 2
(c) Deliveries by Buyer and Subsidiary.......................... 2
2.4 Effect of Merger................................................. 3
(a) General..................................................... 3
(b) Corporate Organization...................................... 3
(c) Conversion of Company's Shares.............................. 3
(d) Company Treasury Shares..................................... 3
(e) Conversion of Subsidiary's Stock............................ 4
2.5 Exchange Fund and Procedures..................................... 4
(a) Exchange Fund............................................... 4
(b) Exchange Procedures......................................... 4
(c) Distributions with Respect to Unsurrendered Certificates.... 4
(d) No Further Ownership Rights in Shares....................... 5
(e) No Fractional Shares of Buyer Common Stock.................. 5
(f) Termination of Exchange Fund................................ 5
(g) No Liability................................................ 5
(h) Investment of the Exchange Fund............................. 5
(i) Lost Certificates........................................... 6
(j) Withholding Rights.......................................... 6
(k) Stock Transfer Books........................................ 6
(l) Affiliates.................................................. 6
(m) Dissenters' Rights.......................................... 6
(n) Stock Options............................................... 7
(o) Warrant Exercise............................................ 7
Article 3 Representations and Warranties of the Company.................... 7
3.1 Organization..................................................... 7
3.2 Authority........................................................ 7
3.3 Enforceability................................................... 8
3.4 Capital Stock.................................................... 8
3.5 No Violation..................................................... 9
3.6 No Consent Required.............................................. 9
3.7 Financial Statements............................................. 9
3.8 Books and Records................................................ 9
3.9 Title to Assets.................................................. 9
3.10 Accounts Receivable.............................................. 9
3.11 Equipment........................................................ 9
3.12 Contracts........................................................ 10
3.13 Real Property.................................................... 11
3.14 Permits.......................................................... 11
3.15 Patents, Marks and Copyrights.................................... 12
3.16 Undisclosed Liabilities.......................................... 13
3.17 Taxes............................................................ 13
3.18 No Material Adverse Change....................................... 14
</TABLE>

i
<PAGE> 149

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
3.19 Employee Benefits................................................ 14
3.20 Insurance........................................................ 15
3.21 Compliance....................................................... 16
3.22 Legal Proceedings................................................ 16
3.23 Absence of Certain Events........................................ 16
3.24 Environmental Matters............................................ 17
3.25 Employees........................................................ 18
3.26 Labor Relations.................................................. 18
3.27 Certain Payments................................................. 18
3.28 Related Persons.................................................. 18
3.29 Broker's Fee..................................................... 19
3.30 Year 2000 Compliance............................................. 19
3.31 Product Recalls.................................................. 19
3.32 Takeover Statutes................................................ 20
3.33 Information Supplied............................................. 20
3.34 Accounting Matters............................................... 20
3.35 Subsidies........................................................ 20
3.36 Disclosure....................................................... 20
Article 4 Representations and Warranties of Buyer and Subsidiary........... 21
4.1 Organization..................................................... 21
4.2 Authority........................................................ 21
4.3 Enforceability................................................... 21
4.4 No Violation..................................................... 21
4.5 No Consent Required.............................................. 21
4.6 Broker's Fee..................................................... 21
4.7 SEC Reports; Financial Statements................................ 21
4.8 Information Supplied............................................. 22
4.9 Accounting Matters............................................... 22
Article 5 Events Prior to Closing.......................................... 22
5.1 Conduct of Business.............................................. 22
5.2 Preparation of the S-4 and the Proxy Statement................... 22
5.3 Letters of Accountants........................................... 23
5.4 Shareholder Meeting.............................................. 23
5.5 Access to Information............................................ 23
5.6 Reasonable Best Efforts.......................................... 23
5.7 Other Filings.................................................... 24
5.8 Notice of Developments........................................... 25
5.9 Acquisition Proposals............................................ 25
5.10 Public Announcements............................................. 26
5.11 Tax-Free Reorganization Treatment................................ 26
5.12 Employee Matters................................................. 26
5.13 Affiliate Letters................................................ 26
5.14 Fees and Expenses................................................ 26
5.15 Listing of Stock................................................. 27
5.16 Comdisco Release................................................. 27
Article 6 Conditions to Closing............................................ 27
6.1 Conditions of Each Party......................................... 27
6.2 Conditions of Buyer and Subsidiary............................... 27
6.3 Conditions of the Company........................................ 28
Article 7 Survival of Representations, Warranties, Covenants and
Agreements; Escrow Provisions.................................... 29
7.1 Survival of Representations, Warranties, Covenants and
Agreements....................................................... 29
</TABLE>

ii
<PAGE> 150

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
7.2 Escrow Provisions................................................ 29
(a) Establishment of the Escrow Fund............................ 29
(b) Recourse to the Escrow Fund................................. 29
(c) Escrow Period; Distribution of Escrow Fund upon Termination
of Escrow Period............................................ 30
(d) Protection of Escrow Fund................................... 30
(e) Claims Upon Escrow Fund..................................... 30
(f) Objections to Claims........................................ 31
(g) Resolution of Conflicts..................................... 31
7.3 Shareholder Representatives; Power of Attorney................... 31
(a) Shareholder Representatives................................. 31
(b) Exculpation................................................. 32
(c) Actions of the Shareholder Representatives.................. 32
7.4 Third Party Claims............................................... 32
7.5 Depositary Agent's Duties........................................ 32
(a) Limitation on Duties of Depositary Agent.................... 32
(b) Compliance with Orders...................................... 32
(c) Limitations on Liability of Depositary Agent................ 33
(d) Good Faith of Depositary Agent.............................. 33
(e) Non-responsibility of Depositary Agent...................... 33
(f) Indemnification of Depositary Agent......................... 33
(g) Resignation of Depositary Agent............................. 33
(h) Fees........................................................ 34
Article 8 Termination, Amendment and Waiver................................ 34
8.1 Termination by Mutual Agreement.................................. 34
8.2 Termination by Either Buyer or the Company....................... 34
8.3 Termination by the Company....................................... 34
8.4 Termination by Buyer............................................. 35
8.5 Effect of Termination and Abandonment............................ 35
8.6 Amendment........................................................ 35
8.7 Extension; Waiver................................................ 35
Article 9 Miscellaneous.................................................... 36
9.1 Confidentiality.................................................. 36
9.2 Notices.......................................................... 36
9.3 Further Assurances............................................... 37
9.4 Entire Agreement................................................. 37
9.5 Assignment....................................................... 37
9.6 No Third Party Beneficiaries..................................... 37
9.7 Severability..................................................... 37
9.8 Captions......................................................... 37
9.9 Construction..................................................... 37
9.10 Counterparts..................................................... 38
9.11 Governing Law.................................................... 38
9.12 Binding Effect................................................... 38
</TABLE>

iii
<PAGE> 151

MERGER AGREEMENT

This Agreement is entered into as of September 29, 1999 by Texas
Instruments Incorporated, a Delaware corporation ("Buyer"), Power Acquisition
Corp., an Illinois corporation and wholly-owned subsidiary of Buyer
("Subsidiary"), and Power Trends, Inc., an Illinois corporation (the "Company").

BACKGROUND

A. The Company is engaged in the business of manufacturing and selling
integrated switching regulators and DC-to-DC converters with a focus on on-board
modular power solutions.

B. This Agreement contemplates a transaction in which Subsidiary will merge
with and into the Company, with (i) the Company becoming a wholly-owned
subsidiary of Buyer and (ii) all of the issued and outstanding capital stock of
the Company being converted into the right to receive shares of common stock,
par value $1.00 per share, of Buyer (together with any associated right to
acquire shares of the Cumulative Preferred Stock of Buyer pursuant to Buyer's
Rights Plan (collectively, "Buyer Common Stock").

C. A portion of the shares of Buyer Common Stock otherwise issuable or
reserved for issuance by Buyer in connection with the Merger shall be placed in
escrow by Buyer, the release of which shall be contingent upon the occurrence of
certain events and the satisfaction of certain conditions, all as set forth in
Article 7.

D. As an inducement to Buyer and Subsidiary to enter into this Agreement,
certain stockholders of the Company have concurrently herewith entered into a
voting agreement in the form attached hereto as EXHIBIT A (the "Voting
Agreement"), pursuant to which such stockholders have agreed to vote all shares
of capital stock of the Company owned by them in favor of the Merger.

E. As an inducement to Buyer and Subsidiary to enter into this Agreement,
Buyer, the Company and the employees of the Company identified therein have
concurrently herewith entered into the employment agreements in the form
attached hereto as EXHIBITS B-1, B-2, B-3, B-4, B-5 and B-6, which agreements
shall become effective as of the Effective Time.

F. For federal income Tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code.

G. For accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests."

Now, therefore, in consideration of their mutual promises and intending to
be legally bound, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

Certain capitalized terms used in this Agreement are defined in ANNEX I.

A-1
<PAGE> 152

ARTICLE 2

THE TRANSACTION

2.1 Merger. Upon the terms and subject to the conditions of this
Agreement, Subsidiary shall merge with and into the Company (the "Merger") at
the Effective Time. The Company shall be the corporation surviving the Merger
(the "Surviving Corporation").

2.2 Closing. The closing of the transactions contemplated by this
Agreement ("Closing") shall take place at a time and location to be specified by
the Parties on November 30, 1999, or if later, on the second business day after
satisfaction or waiver of the conditions set forth in Article 6 (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions at the Closing).

2.3 Closing Events. At Closing, the following events shall take place, all
of which shall be considered to take place concurrently:

(a) Plan and Articles of Merger. The Company and Subsidiary shall
enter into a plan of merger consistent with the terms hereof and otherwise
in form and substance reasonably satisfactory to the Parties (the "Plan of
Merger") and execute articles of merger in form and substance reasonably
satisfactory to the Parties (the "Articles of Merger"), to which the Plan
of Merger is an exhibit, and shall file the Articles of Merger with the
Secretary of State of the State of Illinois.

(b) Deliveries by the Company. The Company shall make or cause the
following deliveries to Buyer and Subsidiary:

(1) the Company shall deliver an Officer's Certificate to Buyer and
Subsidiary certifying that: (i) the Company's representations and
warranties in Article 3 are true and correct in all material respects as
of the Closing Date as if made at and as of Closing, (ii) the Company
has performed in all material respects all of its obligations under this
Agreement that it is required to perform prior to or at Closing; and
(iii) Shareholder Approval has been obtained;

(2) the Company shall deliver the written resignations, effective
as of the Effective Time, of all of the Company's incumbent directors
and officers other than those whom Buyer has specified by Notice to the
Company at least five days prior to Closing; and

(3) Johnson and Colmar shall deliver to Buyer an opinion of counsel
addressing such matters as reasonably requested by, and otherwise in
form and substance reasonably satisfactory to, Buyer (the "Company Legal
Opinion").

(1) Buyer and Subsidiary shall deliver the shares of Buyer Common
Stock issuable or reserved for issuance pursuant to the Merger in
accordance with Sections 2.5(a) and 7.2(a);

(2) Buyer and Subsidiary shall deliver a joint Officers'
Certificate to the Company (for delivery to the Shareholder
Representatives) certifying that: (i) the representations and warranties
of Buyer and Subsidiary in Article 4 are true and correct in all
material respects on the Closing Date as if made at and as of Closing;
and (ii) Buyer and Subsidiary have performed in all material respects
all of their respective obligations under this Agreement that they are
required to perform prior to or at Closing; and

(3) Weil, Gotshal & Manges LLP shall deliver to the Company an
opinion of counsel addressing such matters as reasonably requested by,
and otherwise in form and substance reasonably satisfactory to, the
Company (the "Buyer Legal Opinion").

A-2
<PAGE> 153

2.4 Effect of Merger.

(a) General. The Merger shall become effective at the time (the
"Effective Time") that the Secretary of State of the State of Illinois
issues a certificate of merger in respect of the Articles of Merger. The
Merger shall have the effects as set forth in the applicable provisions of
the Illinois Business Corporation Act. The Surviving Corporation may, at
any time after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Company or
Subsidiary in order to carry out and give effect to the Merger.

(b) Corporate Organization. As of the Effective Time, the articles of
incorporation of the Company shall be amended and restated in accordance
with the amended and restated articles of incorporation attached hereto as
EXHIBIT C and such amended and restated articles of incorporation shall be
the articles of incorporation of the Surviving Corporation. As of the
Effective Time, the by-laws, officers and directors of Subsidiary shall be
the by-laws, officers and directors of the Surviving Corporation.

(1) each share of Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than a Dissenting Share
or shares held by the Company) shall be converted into the right to
receive the number (rounded to the nearest ten thousandth) of fully paid
and non-assessable shares of Buyer Common Stock equal to (i) the
Exchange Ratio multiplied by (ii) 100; and

(2) each share of Common Stock issued and outstanding immediately
prior to the Effective Time (other than a Dissenting Share or shares
held by the Company) shall be converted into the right to receive the
number (rounded to the nearest ten thousandth) of fully paid and non-
assessable shares of Buyer Common Stock equal to the Exchange Ratio.

For purposes of this Agreement, the "Exchange Ratio" shall be determined by
dividing $8.67 by the Average Buyer Stock Price. As used herein, the
"Average Buyer Stock Price" means the average of the daily high and low
sales prices, regular way, of one share of Buyer Common Stock (rounded to
the nearest thousandth) on the New York Stock Exchange ("NYSE") (as
reported in the New York City edition of the Wall Street Journal or, if not
reported thereby, another nationally recognized source) during the 20
consecutive trading day period ending on the second trading day prior to
the Effective Time; provided, however, that (i) subject to Section 8.3(b),
if the Average Buyer Stock Price is less than $67.00, the Average Buyer
Stock Price for purposes of determining the Exchange Ratio shall be equal
to $67.00 (the "Minimum Average Buyer Stock Price"), and (ii) subject to
Section 8.4(b), if the Average Buyer Stock Price is greater than $107.00,
the Average Buyer Stock Price for purposes of determining the Exchange
Ratio shall be equal to $107.00 (the "Maximum Average Buyer Stock Price").
If between the date of this Agreement and the Effective Time Buyer changes
(or establishes a record date for changing) the outstanding shares of Buyer
Common Stock into a different number of shares or a different class of
shares as a result of any stock dividend, subdivision, reclassification,
recapitalization, split (including a reverse split), combination, exchange
of shares or extraordinary dividend (in cash or otherwise), or any similar
event, then the Average Buyer Stock Price, the Minimum Average Buyer Stock
Price and the Maximum Average Buyer Stock Price shall be appropriately
adjusted to the extent necessary to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, extraordinary dividend or such similar event. All such
shares of Buyer Common Stock issued pursuant to this Section 2.4(c),
together with any cash in lieu of fractional shares of Buyer Common Stock
to be paid pursuant to Section 2.5(e), are collectively referred to herein
as the "Merger Consideration."

(d) Company Treasury Shares. At and as of the Effective Time, each
share of Common Stock owned by the Company shall become one share of common
stock of the Surviving Corporation and

A-3
<PAGE> 154

each share of Preferred Stock owned by the Company shall be converted into
100 shares of common stock of the Surviving Corporation, all of which shall
be held in treasury.

(e) Conversion of Subsidiary's Stock. At and as of the Effective Time,
each share of Subsidiary's common stock, par value $.01 per share, shall be
converted into one share of common stock of the Surviving Corporation.

2.5 Exchange Fund and Procedures.

(a) Exchange Fund. Prior to the Effective Time, Buyer shall appoint a
commercial bank or trust company reasonably acceptable to the Company to
act as exchange agent hereunder for the purpose of exchanging Shares for
the Merger Consideration (the "Exchange Agent"). At or prior to the
Effective Time, Buyer shall deposit with the Exchange Agent, in trust for
the benefit of holders of Shares, certificates representing the Buyer
Common Stock issuable pursuant to Section 2.4(c) in exchange for
outstanding Shares less the shares of Buyer Common Stock constituting the
Escrow Fund (which will be deposited with the Depositary Agent pursuant to
the provisions of Article 7). Buyer agrees to make available to the
Exchange Agent from time to time as needed, cash sufficient to pay cash in
lieu of fractional shares pursuant to Section 2.5(e) and any dividends and
other distributions pursuant to Section 2.5(c). Any cash and certificates
of Buyer Common Stock deposited with the Exchange Agent shall hereinafter
be referred to as the "Exchange Fund."

(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall use commercially reasonable
efforts to cause the Exchange Agent to mail to each holder of a certificate
or certificates which, immediately prior to the Effective Time, represented
outstanding Shares (the "Certificates") (i) a letter of transmittal which
shall specify that delivery shall be effective, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to
the Exchange Agent, and which letter shall be in customary form and have
such other provisions as Buyer may reasonably specify; and (ii)
instructions for effecting the surrender of such Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate to the
Exchange Agent together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and such other
documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor (A)
shares of Buyer Common Stock representing, in the aggregate, the whole
number of shares that such holder has the right to receive pursuant to
Section 2.4(c) (after taking into account all Shares then held by such
holder), less the number of shares of Buyer Common Stock that are to be
contributed on the holder's behalf and deposited into the Escrow Fund, and
(B) a check in the amount equal to the cash that such holder has the right
to receive pursuant to the provisions of this Article 2, including cash in
lieu of any dividends and other distributions pursuant to Section 2.5(c)
and cash in lieu of fractional shares pursuant to Section 2.5(e). No
interest will be paid or will accrue on any cash payable pursuant to
Section 2.5(c) or Section 2.5(e). In the event of a transfer of ownership
of Common Stock or Preferred Stock that is not registered in the transfer
records of the Company, a certificate evidencing, in the aggregate, the
proper number of shares of Buyer Common Stock, a check in the proper amount
of cash in lieu of any fractional shares of Buyer Common Stock pursuant to
Section 2.5(e) and any dividends or other distributions to which such
holder is entitled pursuant to Section 2.5(c), may be issued with respect
to such Shares to such a transferee if the Certificate representing such
Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer Taxes have been paid.

(c) Distributions with Respect to Unsurrendered Certificates. No
dividends or other distributions declared or made with respect to shares of
Buyer Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of Buyer Common Stock that such holder would be entitled to receive
upon surrender of such Certificate and no cash payment in lieu of
fractional shares of Buyer Common Stock shall be paid to any such holder
pursuant to Section 2.5(e) until such holder shall surrender such
Certificate in

A-4
<PAGE> 155

accordance with Section 2.5(b). Subject to the effect of applicable Laws,
following surrender of any such Certificate, there shall be paid to such
holder of shares of Buyer Common Stock issuable in exchange therefor,
without interest, (a) promptly after the time of such surrender, the amount
of any cash payable in lieu of fractional shares of Buyer Common Stock to
which such holder is entitled pursuant to Section 2.5(e) and the amount of
dividends or other distributions with a record date after the Effective
Time theretofore paid with respect to such whole shares of Buyer Common
Stock, and (b) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior
to such surrender and a payment date subsequent to such surrender payable
with respect to such whole shares of Buyer Common Stock.

(d) No Further Ownership Rights in Shares. All shares of Buyer Common
Stock issued and cash paid upon conversion of the Shares in accordance with
the terms of Article 2 (including any cash paid pursuant to Sections 2.5(c)
and 2.5(e)) shall be deemed to have been issued or paid in full
satisfaction of all rights pertaining to the Shares.

(e) No Fractional Shares of Buyer Common Stock. No certificates or
scrip representing fractional shares of Buyer Common Stock or book-entry
credit of the same shall be issued upon the surrender for exchange of
Certificates and such fractional share interests will not entitle the owner
thereof to vote or to have any rights of a stockholder of Buyer or a holder
of shares of Buyer Common Stock. Notwithstanding any other provision of
this Agreement, each holder of Shares exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of
Buyer Common Stock (after taking into account all Certificates delivered by
such holder and the deposit of Buyer Common Stock in the Escrow Fund) shall
receive, in lieu thereof, cash (without interest) in an amount equal to the
product of (i) such fractional part of a share of Buyer Common Stock
multiplied by (ii) the closing price on the NYSE (as reported in the New
York City edition of the Wall Street Journal or, if not reported thereby,
another nationally recognized source) for a share of Buyer Common Stock on
the date of the Effective Time. As promptly as practicable after the
determination of the aggregate amount of cash to be paid to holders of
fractional interests, the Exchange Agent shall notify Buyer and Buyer shall
cause the Surviving Corporation to deposit such amount with the Exchange
Agent and shall cause the Exchange Agent to forward payments to such
holders of fractional interests subject to and in accordance with the terms
hereof.

(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to the Surviving Corporation or
otherwise on the instruction of the Surviving Corporation, and any holders
of the Certificates who have not theretofore complied with this Article 2
shall thereafter look only to the Surviving Corporation and Buyer for the
Merger Consideration with respect to the Shares formerly represented
thereby to which such holders are entitled pursuant to Section 2.4(c) and
2.5(b), any cash in lieu of fractional shares of Buyer Common Stock to
which such holders are entitled pursuant to Section 2.5(e) and any
dividends or distributions with respect to shares of Buyer Common Stock to
which such holders are entitled pursuant to Section 2.5(c). Any such
portion of the Exchange Fund remaining unclaimed by holders of Shares five
years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of
any Governmental Authority) shall, to the extent permitted by Law, become
the property of the Surviving Corporation free and clear of any claims or
interest of any Person previously entitled thereto.

(g) No Liability. None of Buyer, the Subsidiary, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to any Person
in respect of any Merger Consideration from the Exchange Fund delivered, in
good faith, to a public official pursuant to any applicable abandoned
property, escheat or similar Law.

(h) Investment of the Exchange Fund. The Exchange Agent shall invest
any cash included in the Exchange Fund as directed by Buyer on a daily
basis. Any interest and other income resulting from such investments shall
promptly be paid to Buyer.

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(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if
reasonably required by the Surviving Corporation, the posting by such
Person of a bond in such reasonable amount as the Surviving Corporation may
direct as indemnity by such Person against any claim that may be made
against the Surviving Corporation with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the Shares
formerly represented thereby, and unpaid dividends and distributions on
shares of Buyer Common Stock deliverable in respect thereof, pursuant to
this Agreement.

(j) Withholding Rights. Each of the Surviving Corporation and Buyer
shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Shares such
amounts as it is required to deduct and withhold with respect to the making
of such payment under the Internal Revenue Code, the rules and regulations
promulgated thereunder, or any provision of a Tax Law. To the extent that
amounts are so withheld by the Surviving Corporation or Buyer, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect to
which such deduction and withholding was made by the Surviving Corporation
or Buyer, as the case may be.

(k) Stock Transfer Books. The stock transfer books of the Company
shall be closed immediately upon the Effective Time and there shall be no
further registration of transfers of Shares thereafter on the records of
the Company. On or after the Effective Time, any Certificates presented to
the Exchange Agent or Buyer for any reason shall be converted into the
Merger Consideration with respect to the Shares formerly represented
thereby, and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 2.5(c).

(l) Affiliates. Notwithstanding anything to the contrary herein, no
shares of Buyer Common Stock or cash shall be delivered to a Person who may
be deemed an "affiliate" of the Company in accordance with Section 5.13 for
purposes of Rule 145 under the Securities Act, or for purposes of
qualifying the Merger for "pooling of interests" under APB 16 and the
applicable SEC rules and regulations until such Person has executed and
delivered to Buyer the written agreement contemplated by Section 5.13.

(m) Dissenters' Rights. Notwithstanding anything in this Agreement to
the contrary, those Shares ("Dissenting Shares") that are issued and
outstanding immediately prior to the Effective Time and which are held by
shareholders who did not vote in favor of the Merger and have complied with
all of the relevant provisions of Section 5/11.70 of the Illinois Business
Corporation Act ("Dissenting Shareholders") shall not be converted into or
be exchangeable for the right to receive the Merger Consideration, but
shall instead represent only the rights of a dissenting shareholder under
Section 5/11.70 of the Illinois Business Corporation Act, including the
right to obtain payment for the estimated fair value of those shares, plus
accrued interest, as provided under the Illinois Business Corporation Act,
unless and until such holders shall have failed to perfect or shall have
effectively withdrawn or lost their rights to appraisal under the Illinois
Business Corporation Act. If any Dissenting Shareholder shall have failed
to perfect or shall have effectively withdrawn or lost such right, such
holder's Shares shall thereupon be converted into and become exchangeable
for the right to receive, as of the Effective Time, the Merger
Consideration without any interest thereon. The Company shall give Buyer
(i) prompt notice of any written demands for appraisal of any Shares,
attempted withdrawals of such demands and any other instruments served
pursuant to the Illinois Business Corporation Act and received by the
Company relating to shareholders' rights of appraisal, and (ii) the
opportunity to direct all negotiations and proceedings with respect to
demands for appraisal. Neither the Company nor the Surviving Corporation
shall, except with the prior written consent of Buyer, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
payment. If any Dissenting Shareholder shall fail to perfect or shall have
effectively withdrawn or lost the right to dissent, the Shares held by such
Dissenting Shareholder shall thereupon

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be treated as though such Shares had been converted into the right to
receive the Merger Consideration pursuant to Section 2.4(c).

(n) Stock Options. As soon as practicable following the date of this
Agreement, Buyer and the Company (or, if appropriate, any committee of the
Board of Directors of the Company administering the Company's stock option
plans (collectively, the "Company Option Plans")) shall take such action
and the Company shall obtain all such agreements and consents, if any, as
may be required to effect the following provisions of this Section 2.5(n).
As of the Effective Time each option to purchase shares of Common Stock
pursuant to the Company Option Plans (a "Company Stock Option") which is
then outstanding shall be assumed by Buyer and converted into an option
(or, at Buyer's election, Buyer may grant a new substitute option under the
terms of Buyer's stock option plan) (an "Assumed Stock Option") to purchase
the number of shares of Buyer Common Stock (rounded up to the nearest whole
share) equal to (x) the number of shares of Common Stock subject to such
option multiplied by (y) the Exchange Ratio, at an exercise price per share
of Buyer Common Stock (rounded down to the nearest penny) equal to (A) the
former exercise price per share of Common Stock under such option
immediately prior to the Effective Time divided by (B) the Exchange Ratio;
provided, however, that in the case of any Company Stock Option to which
Section 421 of the Internal Revenue Code applies by reason of its
qualification under Section 422 of the Internal Revenue Code, the
conversion formula shall be adjusted, if necessary, to comply with Section
424(a) of the Internal Revenue Code. Except as provided above, each Assumed
Stock Option shall be subject to the same expiration date and vesting
provisions as were applicable to such converted Company Stock Option
immediately prior to the Effective Time. Promptly after the Effective Time,
Buyer shall use its reasonable best efforts to prepare and file with the
SEC a registration statement on Form S-8 or other appropriate form with
respect to shares of Buyer Common Stock subject to the Assumed Stock
Options and to maintain the effectiveness of such registration statement or
registration statements covering such Assumed Stock Options (and maintain
the current status of the prospectus or prospectuses contained therein) for
so long as such Assumed Stock Options remain outstanding. Buyer shall take
all corporate action necessary to reserve for issuance under an appropriate
stock option plan of Buyer a sufficient number of shares of Buyer Common
Stock for delivery upon exercise of the options described above.

(o) Warrant Exercise. As soon as practicable after the date of this
Agreement, the Company shall secure the agreement of the holder of that
certain outstanding warrant to purchase 30,833 shares of Common Stock (the
"Warrant") to exercise the Warrant prior to the Effective Time and shall
confirm to Buyer the consummation of such exercise prior to the Effective
Time.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

In order to induce Buyer and Subsidiary to enter into this Agreement, the
Company represents and warrants to Buyer and Subsidiary, except to the extent
that any statement in this Article 3 is qualified or limited by an exception in
the Disclosure Schedule, as follows:

3.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Illinois, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform its obligations under all Contracts. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the Laws of each state or other jurisdiction in which qualification is required
by Law. The Company has delivered copies to Buyer and Subsidiary of the
Company's Organizational Documents.

3.2 Authority. The Company has the power and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement. As
of the date hereof, a duly constituted special committee of the board, with full
delegated authority to act in respect hereof, has by unanimous vote of

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the members thereof, duly and validly authorized the execution and delivery of
this Agreement and the Voting Agreement and approved the consummation of the
transactions contemplated hereby and thereby and has resolved to recommend that
the shareholders of the Company approve and adopt the Merger on substantially
the terms and conditions set forth in this Agreement. The Company's execution
and delivery of this Agreement and, subject to receipt of Shareholder Approval,
consummation of the Merger and related transactions contemplated hereby, have
been duly authorized by all necessary action required by the Company's
Organizational Documents and the Illinois Business Corporation Act.

3.3 Enforceability. This Agreement constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar Laws affecting the
enforcement of creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).

3.4 Capital Stock.

(a) The Company's authorized capital stock consists of 17,000,000
shares of Common Stock, no par value, and 137,800 shares of Preferred
Stock, no par value, consisting of 17,500 shares designated as Series A-1
Convertible Preferred Stock, 10,000 shares designated as Series A-2
Convertible Preferred Stock, 6,250 shares designated as Series A-3
Convertible Preferred Stock, 77,050 shares designated as Series A-4
Convertible Preferred Stock, and 27,000 shares designated as Series B-1
Convertible Preferred Stock.

(b) The Company has 3,071,695 shares of Common Stock issued and
outstanding, all of which are duly authorized, validly issued, fully paid
and nonassessable, and none of which was issued in violation of the
Securities Act or any state securities or other Law or in violation of or
subject to any preemptive rights. The Company holds no issued shares of
Common Stock in treasury. No Common Stock is held by any subsidiary of the
Company.

(c) The Company has 125,740 shares of Preferred Stock issued and
outstanding, consisting of 17,500 shares of Series A-1 Convertible
Preferred Stock, 10,000 shares of Series A-2 Convertible Preferred Stock,
6,250 shares of Series A-3 Convertible Preferred Stock, 66,375 shares of
Series A-4 Convertible Preferred Stock, and 25,615 shares of Series B-1
Convertible Preferred Stock, all of which are duly authorized, validly
issued, fully paid and nonassessable, and none of which was issued in
violation of the Securities Act or any state securities or other Law or in
violation of or subject to any preemptive rights. The Company holds no
issued shares of Preferred Stock in treasury (including through any
subsidiary).

(d) There are outstanding Options to purchase a total of 1,056,086
shares of Common Stock as listed on Schedule 3.4(d). Schedule 3.4(d)
correctly sets forth with respect to each Option, the name of the holder
thereof, the number of underlying shares, the date of grant, the applicable
vesting schedule and the exercise price thereunder.

(e) Except as set forth in Sections 3.4(b) and 3.4(c), there are no
outstanding shares of capital stock or other equity securities of the
Company nor are there any equity equivalents, interests in the ownership or
earnings of the Company or other similar rights (including stock
appreciation rights). Except as disclosed on Schedule 3.4(d), and except
for the Warrant, there are no securities of the Company convertible into or
exchangeable for shares of capital stock or other equity securities of the
Company or options, warrants, calls, puts, subscription rights, conversion
rights or other Contracts to which the Company is party or by which the
Company is bound providing for the Company's issuance of any Preferred or
Common Stock or any other equity securities.

(f) Except for (i) Corporate Governance Agreements and (ii) redemption
obligations under Article Four of the Company's Articles of Incorporation,
there are no shareholders agreements, buy-sell agreements, voting trusts or
other Contracts to which the Company is a party or by which it is bound
relating to the voting or disposition of any Shares or creating any
obligation of the Company to repurchases, redeem or otherwise acquire or
retire any Shares or any Options.
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(g) Except for all of the issued and outstanding capital stock of the
Foreign Sales Corporation, the Company does not own any shares of capital
stock of or other equity interest in any corporation or other Person.

3.5 No Violation. Subject only to obtaining the Shareholder Approval, the
Company's execution, delivery and performance of this Agreement will not either
directly or indirectly (and with or without Notice or the passage of time or
both):

(a) violate or conflict with the Company's Organizational Documents or
with any resolution adopted by its boards of directors;

(b) result in a breach of or default under any Contract to which the
Company is a party or by which it is bound;

(d) violate or conflict with, or give any Governmental Authority or
other Person the right to challenge the Merger or to obtain any other
relief under, any Law or Order to which the Company is subject.

3.6 No Consent Required. Except as required by HSR or as disclosed in
Schedule 3.6, the Company's execution, delivery and performance of this
Agreement do not require any Notice to, filing with, Permit from or other
Consent of any Governmental Authority or other Person.

3.7 Financial Statements. The Company has delivered copies of the
Financial Statements to Buyer and Subsidiary. The Financial Statements fairly
present in all material respects the Company's financial position, results of
operations and cash flows as of the dates indicated and for the years then
ended, in conformity with GAAP.

3.8 Books and Records. The Books and Records of the Company are complete
and correct and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal
accounting controls. The corporate minute books of the Company contain accurate
and complete records of all meetings and corporate actions taken by written
consent of the Company's boards of directors and shareholders. At Closing, all
of the Books and Records of the Company (including its corporate minute books)
will be in its possession.

3.9 Title to Assets. The Company owns or has a leasehold interest in all
of the tangible and intangible assets of any type or kind that it purports to
own or lease, including (i) all of the assets which are reflected in the June 30
Balance Sheet except for assets which were sold or disposed of after June 30,
1999 in the Ordinary Course of Business and (ii) all of the assets which were
purchased or otherwise acquired after June 30, 1999 and which were not sold or
disposed of prior to the date of this Agreement in the Ordinary Course of
Business. The Company has good and marketable title to all of these assets, free
and clear of any Liens (except as disclosed in Schedule 3.9), and they
constitute all of the tangible and intangible assets relating to or used, held
for use or useful in the conduct of the Business and are sufficient to enable
the Business to be operated in the same manner that it is currently operated.

3.10 Accounts Receivable. Except as disclosed in Schedule 3.10, the
Company's Accounts Receivable: represent valid obligations and have arisen
solely out of bona fide sales and deliveries of goods, performance of services
and other business transactions made in the Ordinary Course of Business; to the
Company's Knowledge, are not subject to valid defenses, set-off or
counterclaims; and, to the Company's Knowledge, are collectible at the full
recorded amount thereof less, in the case of accounts receivable appearing on
the June 30 Balance Sheet, the recorded allowance for collection of doubtful
accounts on the June 30 Balance Sheet. The allowance for collection of doubtful
accounts on the June 30 Balance Sheet has been determined in accordance with
GAAP consistent with past practice.

3.11 Equipment. Schedule 3.11 contains complete and accurate lists of all
of the Company's Equipment having a purchase price of more than $10,000,
identifying each piece of Equipment by vendor, description, model number, serial
number and department.

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3.12 Contracts.

(a) Schedule 3.12(a) consists of subschedules which contain complete
and accurate lists of the following Contracts of the Company as of the date
of this Agreement (listing each Contract only once if more than one listing
otherwise would be required):

(1) all unfilled purchase orders and other Contracts for the
purchase of the Company's products in an amount exceeding $25,000
(Schedule 3.12(a)(1));

(2) all Equipment Leases, identifying each Equipment Lease by (i)
vendor, description, model number, serial number and department of the
piece of Equipment in question and (ii) lessor, lessee, term of lease
and rent payable (Schedule 3.12(a)(2));

(3) all Facility Leases and Former Facility Leases, identifying
each Facility Lease and Former Facility Lease by (i) name, location and
use of the Facility in question, and (ii) for each Facility Lease,
lessor, lessee, term of lease and rent payable, and also identifying any
related Leasehold Improvements by location, description and cost
(Schedule 3.12(a)(3));

(4) all Contracts (or series of related Contracts) for the purchase
or sale of raw materials, parts, supplies, products or other personal
property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than six months or involve
payments in an amount exceeding $25,000 (Schedule 3.12(a)(4));

(5) all Contracts evidencing or securing any Liability of the
Company (Schedule 3.12(a)(5));

(6) all Contracts with distributors and sales representatives
(Schedule 3.12(a)(6));

(7) all Contracts with any Related Party (Schedule 3.12(a)(7));

(8) all Contracts by which the Company has guaranteed the
contractual performance of or any payment by another Person (Schedule
3.12(a)(8));

(9) all powers of attorney and other Contracts by which the Company
has authorized another Person to act as its attorney-in-fact or agent
(Schedule 3.12(a)(9));

(10) all Contracts creating a partnership or joint venture with
another Person or involving a sharing of profits, losses, costs or
Liabilities with another Person (Schedule 3.12(a)(10));

(11) all Contracts that restrict or purport to restrict the
geographical area or scope of the business activities of the Company or
that limit or purport to limit the freedom of the Company to engage in
any line of business or to compete with any Person (Schedule
3.12(a)(11));

(12) all Contracts granting a right of first refusal or first
negotiation;

(13) all Contracts pertaining to employee compensation, employment,
termination of employment or consulting services, including any
agreement that could result in any benefit payable to any Person in
connection with the transactions contemplated hereby (Schedule
3.12(a)(13));

(14) all Contracts (or series of related Contracts) entered into
outside of the Ordinary Course of Business and involving the expenditure
or receipt by any party of an amount exceeding $10,000 (Schedule
3.12(a)(14));

(15) all Contracts requiring the payment of royalty for use of any
intellectual property (Schedule 3.12(a)(15));

(16) all Contracts providing for the license of any intellectual
property of the Company to third parties or by any third party to the
Company (Schedule 3.12(a)(16)); and

(17) all Corporate Governance Agreements (Schedule 3.12(a)(17)).

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The Company has delivered to Buyer and Subsidiary (i) copies of all
written Contracts listed on Schedule 3.12(a), (ii) a written description
of all oral Contracts, if any, listed on Schedule 3.12(a), (iii) copies
of all written amendments or modifications of or supplements to the
Contracts listed on Schedule 3.12(a), and (iv) a written description of
all oral amendments or modifications of or supplements to the Contracts
listed on Schedule 3.12(a), if any.

(b) Except as disclosed in Schedule 3.12(b), each Contract listed on
Schedule 3.12(a) (i) is legal, valid, binding, enforceable in accordance
with its terms, and in full force and effect and (ii) will continue to be
legal, valid, binding, enforceable in accordance with its terms, and in
full force and effect on identical terms following consummation of the
Merger.

(1) no party to a Contract listed on Schedule 3.12(a) is in Default
in any material respect under the Contract, and no event has occurred or
circumstance exists that (with or without Notice or the passage of time,
or both) could result in a Default in a material respect under a
Contract listed on Schedule 3.12(a) or could give any party to a
Contract listed on Schedule 3.12(a) the right to exercise any remedy
under the Contract or to cancel, terminate or modify the Contract;

(2) the Company has not given Notice to or received Notice from any
other Person relating to an alleged, possible or potential Default under
any Contract listed on Schedule 3.12(a);

(3) each purchase order and other Contract listed in Schedule
3.12(a)(1) has been entered into in the Ordinary Course of Business and
without the commission of any act, either alone or in concert with any
other Person, and without any consideration having been paid or
promised, that is or would be in violation of any Law or Order; and

(4) for each Facility Lease listed in Schedule 3.12(a)(3), the
Company (i) has a good and valid leasehold interest in such Facility
Lease free and clear of all Liens, except (x) Taxes and general and
special assessments not in default and payable without penalty and
interest, and (y) easements, covenants and other restrictions that do
not materially impair the current use, occupancy, or value, or the
marketability of the Company's interest in such real property; (ii) the
Company has not assigned, transferred, conveyed, mortgaged, deeded in
trust, or encumbered its leasehold interest in the Facility Lease; and
(iii) all facilities located in or benefiting the Facility Lease are
now, and will be at the time of Closing, in good operating condition and
repair and, to the Company's Knowledge, structurally sound and free of
defects, with no material alterations or repairs required thereto under
applicable Laws, Permits or insurance company requirements, to the
Company's Knowledge. All such facilities are supplied with utilities and
other services necessary for the operation of such facilities, including
gas, electricity, water, telephone, sanitary sewer, and storm sewer, all
of which services are adequate in accordance with all applicable Laws.

3.13 Real Property. The Company does not own and has not owned, and any
current, or former, subsidiaries or corporate predecessors-in-interest do not
own and have not owned, any Real Property.

3.14 Permits.

(a) Schedule 3.14(a) contains a complete and accurate list of all
Permits held by the Company as of the date of this Agreement. The Company
has delivered copies to Buyer and Subsidiary of all Permits listed on
Schedule 3.14(a).

(b) Except as disclosed in Schedule 3.14(b):

(1) all Permits listed on Schedule 3.14(a) are valid and in full
force and effect, and no other Permits are required for the lawful
conduct of the Business as it is currently conducted;

(2) the Company has conducted the Business in compliance in all
material respects with the Permits listed on Schedule 3.14(a);
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(3) no event has occurred or circumstance exists that (with or
without Notice or the passage of time or both) could (i) constitute or
result in a violation of or failure to comply with any Permit listed on
Schedule 3.14(a) or (ii) result in the revocation, withdrawal,
suspension, cancellation, termination or material modification of any
Permit listed;

(4) the Company has not received any written or oral Notice from
any Governmental Authority or other Person regarding (i) any actual,
alleged or potential violation of or failure to comply with any Permit
listed on Schedule 3.14(a) or (ii) any actual, proposed or potential
revocation, withdrawal, suspension, cancellation, termination or
modification of any Permit listed; and

(5) the Company has duly filed on a timely basis all applications
that were required to be filed for the renewal of the Permits listed on
Schedule 3.14(a) and have duly made on a timely basis all other filings
required to have been made in respect of the Permits listed.

3.15 Patents, Marks and Copyrights.

(a) Schedule 3.15(a) consists of three subschedules and contains
complete and accurate lists of the following intellectual property of the
Company as of the date of this Agreement:

(1) all Patents (Schedule 3.15(a)(1));

(2) all Marks (Schedule 3.15(a)(2)); and

(3) all Copyrights (Schedule 3.15(a)(3)).

The Company has delivered copies to Buyer and Subsidiary of all Patents,
Marks and Copyrights listed on Schedule 3.15(a).

(b) The Patents, Marks and Copyrights listed on Schedule 3.15(a) are
all those necessary for the conduct of the Business as it is currently
conducted. Except as disclosed in Schedule 3.15(b), the Company owns, free
and clear of any Liens, or has a royalty-free, exclusive, perpetual and
irrevocable license to use, all of the Patents, Marks and Copyrights listed
on Schedule 3.15(a).

(1) all of the issued Patents listed on Schedule 3.15(a)(1) are
currently in compliance with formal legal requirements (including
payment of filing, examination and maintenance fees and proofs of
working or use) and are valid and enforceable;

(2) no Patent listed on Schedule 3.15(a)(1) is or has been involved
in any interference, reissue, reexamination or opposition proceeding,
and to the Company's Knowledge, none is Threatened; and

(3) to the Company's Knowledge, (i) there is no potentially
interfering Patent of any other Person and (ii) no issued Patent listed
on Schedule 3.15(a)(1) is being or has been infringed or is being or has
been challenged or threatened in any way.

(d) Except as disclosed in Schedule 3.15(d):

(1) all of the Marks listed on Schedule 3.15(a)(2) that have been
registered with any Governmental Authority are currently in compliance
with formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications) and are valid and enforceable;

(2) no Mark listed on Schedule 3.15(a)(2) is or has been involved
in any opposition, invalidation or cancellation and, to the Company's
Knowledge, none is Threatened; and

(3) to the Company's Knowledge, (i) there is no potentially
interfering Mark of any other Person and (ii) no Mark listed on Schedule
3.15(a)(2) is being or has been infringed or is being or has been
challenged or threatened in any way.

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(e) The Company has taken all actions reasonably necessary or
appropriate to protect its Proprietary Information. Each employee of the
Company has executed a written assignment of inventions to the Company, and
each third party technical consultant or contractor of the Company has
executed a written assignment of inventions, copyrights and obligation of
confidentiality in favor of the Company.

(f) To the Company's Knowledge, no employee of the Company has entered
into any Contract that restricts or limits in any way the scope or type of
work in which the employee may be engaged or requires the employee to
transfer, assign or disclose information concerning his work to any Person
other than the Company.

(g) The Company possesses all Proprietary Rights necessary for the
conduct of the Business as presently conducted. The conduct of the Business
as presently conducted does not infringe upon any intellectual property
rights of any third party.

(h) Except as set forth on Schedule 3.15(h), the Company has not
licensed any intellectual property of the Company to any third party.

3.16 Undisclosed Liabilities. Except as disclosed in Schedule 3.16, as of
the date of this Agreement the Company does not have, and as of Closing the
Company will not have, any Liabilities except for (i) Liabilities reflected on
the June 30 Balance Sheet and (ii) Liabilities that have arisen since June 30,
1999 in the Ordinary Course of Business.

3.17 Taxes.

(a) The Company has filed all Tax Returns that it was required to file
prior to the date of this Agreement and will file all Tax Returns that it
may become required to file on or after the date of this Agreement and on
or prior to the Closing Date. All Tax Returns that the Company filed prior
to the date of this Agreement were correct and complete in all material
respects, and all Taxes due in connection with these returns have been
paid. All Tax Returns that the Company files on or after the date of this
Agreement and prior to the Closing Date will be correct and complete in all
material respects, and all Taxes due in connection with these returns will
be paid when due.

(b) No Tax Return that the Company filed prior to the date of this
Agreement is currently under audit or examination, and the Company has not
received Notice from any Governmental Authority that (i) any Tax Return
that it filed will be audited or examined or that (ii) it is or may be
liable for additional Taxes in respect of any Tax Return or for the payment
of Taxes in respect of a Tax Return that it did not file (because, for
example, it believed that it was not subject to taxation by the
jurisdiction in question).

(c) The Company has withheld and paid to the proper Governmental
Authority all Taxes that it was required to withhold and pay in respect of
compensation or other amounts paid to any employee or independent
contractor.

(d) The Company did not have any delinquent Taxes as of June 30, 1999,
and the reserve for Taxes reflected on the June 30 Balance Sheet was
adequate for all unpaid Taxes.

(e) Except as disclosed in Schedule 3.17(e), the Company has not
extended the time in which to file any Tax Return, waived the statute of
limitations for any Tax or agreed to any extension of time for a Tax
assessment or deficiency.

(f) The Company has not filed a consent under sec. 341(f) of the
Internal Revenue Code (relating to collapsible corporations) or made any
payments, or is or could become obligated under an existing Contract
(including a stock option) to make any payments, that are not deductible
under sec. 280G of the Internal Revenue Code (relating to "golden
parachute" payments).

(g) Schedule 3.17(g) lists all Tax Returns that the Company has filed
since January 1, 1997. The Company has delivered copies to Buyer and
Subsidiary of all of the Tax Returns listed on Schedule 3.17(g). The
Company is not a party to any agreement providing for the allocation or
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sharing of Taxes. The Company does not have any liability under Treasury
Regulation Section 1.1502-6 or any similar provision of Law for U.S.
federal income Taxes or any other Tax of any Person other than itself.

(h) The Company is not currently, has not been within the last five
years, and does not anticipate becoming a "United States real property
holding company" within the meaning of Section 897(c) of the Internal
Revenue Code.

(i) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" (within the meaning of Section
355(a)(1)(A) of the Internal Revenue Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Internal Revenue
Code (i) in the two years prior to the date of this Agreement or (ii) in a
distribution which could otherwise constitute part of a "plan" or "series
of related transactions" (within the meaning of Section 355(e) of the
Internal Revenue Code) in conjunction with the Merger.

3.18 No Material Adverse Change. Since June 30, 1999, there has not been
any material adverse change in the Company's financial position, results of
operations or assets, and no event has occurred or circumstance exists relating
to the Company specifically (as opposed to the electronics industry or the
United States economy generally) that has had or could reasonably be expected to
have a Material Adverse Effect.

3.19 Employee Benefits.

(a) Schedule 3.19(a) contains a complete and accurate list of all
Employee Benefit Plans under which the Company has any obligation or
liability (contingent or otherwise). The Company has delivered complete and
correct copies to Buyer and Subsidiary of all written Employee Benefit
Plans listed on Schedule 3.19(a) (including the plan documents and all
related trust agreements, insurance policies and other Contracts) and a
written description of all oral Employee Benefit Plans so listed. The
Company has also delivered to Buyer and Subsidiary copies of the most
recent summary plan description, annual report (IRS Form 5500 series),
summary annual report, financial statements, actuarial report and Internal
Revenue Service favorable determination letter for each plan listed (to the
extent applicable). The Company has also delivered correct and complete
copies of the forms of stock option agreements used to make grants under
the Company Option Plans.

(b) Except as disclosed in Schedule 3.19(b), in the case of each
Employee Benefit Plan listed on Section 3.19(a):

(1) the plan (and each related trust or insurance policy) complies
in form and in operation in all respects with the applicable
requirements of ERISA, the Internal Revenue Code and any other Law (or
complied in form and operation while the Company maintained or
contributed to or was bound by the plan or its employees participated in
the plan, and, to the Company's Knowledge, there are no failures to
comply with applicable Law prior thereto);

(2) all required contributions to or premiums or other payments in
respect of the plan have been timely paid;

(3) there have been no "prohibited transactions" (as defined in
sec. 406 of ERISA and sec. 4975 of the Internal Revenue Code) in respect
of the plan; and

(4) no Suit in respect of the administration or operation of the
plan or the investment of plan assets is pending or, to the Company's
Knowledge, Threatened, and to the Company's Knowledge, there is no basis
for any such Suit.

(c) Except as disclosed in Schedule 3.19(c) or to the extent required
by sec. 4980B of the Internal Revenue Code, the Company does not provide
health or other welfare benefits to any retired or former employee and is
not obligated to provide health or other welfare benefits to any active
employee following his or her retirement or other termination of service.

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(d) The Company does not maintain and has never maintained an Employee
Benefit Plan that is or was subject to the "minimum funding standards"
under sec. 302 of ERISA or that is or was subject to Title IV of ERISA.

(e) The Company does not contribute to and has never been required to
contribute to any "multiemployer plan" (as defined in sec. 3(37) of ERISA),
incurred any "withdrawal liability" (as defined in sec. 4021 of ERISA) in
respect of any multiemployer plan or withdrawn from any multiemployer plan
in a "complete withdrawal" or a "partial withdrawal" (as respectively
defined in sec.sec. 4203 and 4205 of ERISA).

(f) Each Employee Benefit Plan and any related trust intended to
qualify under Section 401(a) of the Internal Revenue Code so qualifies. Any
voluntary employee benefit association which provide benefits to current or
former employees of the Company or their beneficiaries is and has been
qualified under Section 501(c)(9) of the Internal Revenue Code.

(g) The Company is not a member of a group of trades or businesses
under common control or treated as a single employer within the meaning of
Section 414(b), (c) or (m) of the Internal Revenue Code.

(h) Except as disclosed in Schedule 3.19(h), neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment becoming due to any
employee (current, former or retired) of the Company, (ii) increase any
benefits under any Employee Benefit Plan or Contract with any such employee
or current or former director of the Company, or (iii) result in the
acceleration of time of payment of, vesting of or other rights in respect
of any such benefits.

(i) Each of the Employee Benefit Plans covering employees outside of
the United States is fully funded through adequate reserves on the
Financial Statements, insurance contracts, annuity contracts, trust funds
or similar arrangements. The benefits and compensation under the Employee
Benefit Plans and Contracts covering employees of the Company outside of
the United States are no more than customary and reasonable for the country
in which such employees work and the industry in which the Company conducts
its business.

3.20 Insurance.

(a) Schedule 3.20(a) consists of four subschedules and lists:

(1) all insurance policies under which the Company or any director
or officer of the Company (in his or her capacity as a director or
officer) is insured or has been insured at any time since January 1,
1997 (Schedule 3.20(a)(1));

(2) all self-insurance arrangements by the Company (Schedule
3.20(a)(2));

(3) all Contracts and arrangements, other than insurance policies
and self-insurance arrangements, for the transfer or sharing of any risk
by the Company (Schedule 3.20(a)(3)); and

(4) all obligations of the Company to provide insurance coverage to
any Person other than an employee of the Company ((Schedule 3.20(a)(4)).

The Company has delivered to Buyer and Subsidiary (i) copies of all
insurance policies listed on Schedule 3.20(a)(1) and all Contracts listed
on Schedule 3.20(a)(3) and (ii) a written description of all self-insurance
arrangements listed on Schedule 3.20(a)(2).

(b) Schedule 3.20(b) lists the amount and provides a brief description
of each claim in excess of $25,000 under each insurance policy listed on
Schedule 3.20(a)(1).

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3.21 Compliance. Except as disclosed in Schedule 3.21:

(a) The Company has complied in all material respects, and is in
compliance in all material respects, with each Law and Order that is or was
applicable to it or to the conduct of the Business.

(b) No event has occurred or circumstance exists that (with or without
Notice or the passage of time or both) could (i) constitute or result in a
violation by the Company of or its failure to comply with any applicable
Law or Order or (ii) give rise to any legal obligation of the Company to
undertake or bear all or any portion of the cost of any remedial action of
any kind.

(c) The Company has not received any written or oral Notice from any
Governmental Authority or other Person regarding (i) any actual, alleged or
potential violation by the Company of or its failure to comply with any
applicable Law or Order or (ii) any actual, alleged or potential obligation
of the Company to undertake or bear all or any portion of the cost of any
remedial action of any kind.

3.22 Legal Proceedings.

(a) Schedule 3.22(a) consists of two subschedules and lists:

(1) all pending Suits in which the Company is a party or which
otherwise relate to or affect the Company or the Business (Schedule
3.22(a)(1)); and

(2) all other Suits involving monetary claims of more than $25,000
or requests for injunctive relief in which the Company was a party or
which otherwise related to or affected (or could have affected) the
Company or the Business (Schedule 3.22(a)(2)).

The Company has delivered to Buyer and Subsidiary (i) copies of all
pleadings, correspondence and other documents relating to each Suit listed
on Schedule 3.22(a)(1) and (ii) a written description in reasonable detail
of each Suit listed on Schedule 3.22(a)(2).

(b) Except as disclosed in Schedule 3.22(b):

(1) none of the pending Suits listed on Schedule 3.22(a)(1) could
reasonably be expected to have a Material Adverse Effect;

(2) there is no Threatened Suit against the Company or which
otherwise relates to or could affect the Company or the Business;

(3) to the Company's Knowledge, no event has occurred or
circumstance exists that may give rise to or serve as a basis for any
Suit to be brought or Threatened against the Company; and

(4) there is no Threatened Suit that challenges the Merger or could
have the effect of preventing, delaying, making illegal or otherwise
interfering with the Merger.

3.23 Absence of Certain Events. Except as disclosed in Schedule 3.23,
since June 30, 1999, the Company has not:

(a) sold, leased, transferred or disposed of any of its assets used,
held for use or useful in conduct of the Business except in the Ordinary
Course of Business;

(b) entered into any Contract relating to the Business except in the
Ordinary Course of Business;

(c) terminated, accelerated or modified any Contract relating to the
Business to which it is or was a party or by which it is or was bound, or
has agreed to do so, or has received Notice that another party had done so
or intends to do so, except in the case of Contracts which expired in
accordance with their terms or which were terminated in the Ordinary Course
of Business;

(d) imposed or permitted any Lien on any of its assets relating to or
used, held for use or useful in the conduct of the Business;

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(e) delayed or postponed (beyond its normal practice) payment of its
vendor accounts payable and other Liabilities;

(f) cancelled, compromised, waived or released any claim or right
outside of the Ordinary Course of Business;

(g) experienced any material damage, destruction or loss to any of its
assets used, held for use or useful in conduct of the Business (whether or
not covered by insurance);

(h) changed the base compensation or other terms of employment of any
of its employees;

(i) paid a bonus to any employee;

(j) adopted a new Employee Benefit Plan, terminated any existing plan
or increased the benefits under or otherwise modified any existing plan
except as contemplated in this Agreement;

(k) amended its Organizational Documents;

(l) issued, sold, redeemed or repurchased any shares of capital stock
or other securities or retired any indebtedness;

(m) granted any Options;

(n) declared or paid any dividends or made any other distributions in
respect of its capital stock;

(o) made, or guaranteed, any loans or advances to another Person or
made any investment or commitment therefor in any Person;

(p) made any capital expenditures in excess of $100,000 in the
aggregate;

(q) made any change in its accounting principles or methods;

(r) entered into any Contract to do any of the matters described in
the preceding clauses (a)-(q); or

(s) entered into or engaged in any other transaction or activity
outside of the Ordinary Course of Business, or suffered the occurrence or
any other event involving the Business occurring outside of the Ordinary
Course of Business.

3.24 Environmental Matters. Except as disclosed in Schedule 3.24:

(a) The Company is, and has been at all times, in compliance in all
material respects with all applicable Environmental Laws and Occupational
Safety and Health Laws, and the Company is not aware of any facts,
circumstances or conditions which would prevent material compliance in the
future.

(b) Neither the Company nor any other Person for whose conduct the
Company may be held responsible has received, and to the Company's
Knowledge, there is no basis to expect the Company or any other Person for
whose conduct the Company may be held responsible to receive, any Notice
from any Governmental Authority, any private citizen acting in the public
interest, the current or prior owner or operator of any current or former
Facility, or any other Person, of (i) any actual or potential violation or
failure to comply with any of the Environmental Laws or (ii) any actual or
potential Cleanup Liability or other Environmental Liability.

(c) To the Company's Knowledge, neither the Company nor any other
Person for whose conduct the Company may be held responsible has any
Cleanup Liability or other Environmental Liability in respect of any
current or former Facility, any property adjoining any current or former
Facility, or any assets used or useful in the conduct of the Business, and
no such current or, to the Company's Knowledge, former Facility contains or
contained (i) any underground storage tanks, (ii) any landfills, dumps or
surface impoundments, (iii) any asbestos-containing materials, or (iv) any
polychlorinated biphenyls.

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(d) Except for Hazardous Materials stored or used in the Ordinary
Course of Business and in compliance in all material respects with all
applicable Environmental Laws, there are no Hazardous Materials at any
current Facility (whether or not in storage tanks or other containers). To
the Company's Knowledge, except for Hazardous Activities conducted in the
Ordinary Course of Business and in compliance in all material respects with
all applicable Environmental Laws, neither the Company nor any other Person
for whose conduct the Company may be held responsible has permitted or
conducted any Hazardous Activity at any current or former Facility.

(e) To the Company's Knowledge, there has been no Release or
threatened Release by the Company or any other Person of any Hazardous
Materials at or from any current or former Facility or any property
adjoining any current or former Facility.

None of the exceptions on Schedule 3.24 are reasonably likely to result in
the Company incurring costs and liabilities which would reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect. The Company has delivered copies to Buyer and Subsidiary of all
reports, studies, analyses, tests or monitoring possessed or initiated by
the Company relating to Hazardous Materials or Hazardous Activities at any
current, or former, Facility or compliance by the Company, or any other
Person for whose conduct the Company may be held responsible, with
applicable Environmental Laws.

3.25 Employees. Schedule 3.25 of the Disclosure Schedule contains a
complete and accurate list of the following information for the employees of the
Company, including employees on leave of absence: name; job title; date of hire;
current base compensation; changes in base compensation since January 1, 1998;
bonus targets; accrual rate on vacation; visa type (if any) as reflected on the
Form I-9 in the Company's files; and accrued flex time-off hours. The Company
has complied with all applicable documentation requirements of the United States
Immigration and Naturalization Service with respect to its employees. To the
Company's Knowledge, no employee of the Company is a party to or is otherwise
bound by any Contract or arrangement, including any confidentiality,
noncompetition or proprietary rights agreement, that would limit or restrict the
scope of his or her duties as an employee of the Surviving Corporation following
Closing. All employees of the Company have the legal right to work in the
country in which they are employed.

3.26 Labor Relations. The Company is not and has never been a party to any
collective bargaining agreement or other labor Contract. The Company is not
experiencing, and has not experienced at any time, and, to the Company's
Knowledge, there is no basis to expect the Company to experience: (i) any
strike, slowdown, picketing or work stoppage by or lockout of its employees;
(ii) any Suit relating to the alleged violation of any Law or Order relating to
labor relations or employment matters (including any charge or complaint filed
by an employee or union with the U.S. National Labor Relations Board or Equal
Employment Opportunity Commission or any other comparable Governmental
Authority); (iii) any other labor or employment dispute; or (iv) any activity to
organize or establish a collective bargaining unit, trade union or employee
association.

3.27 Certain Payments. Neither the Company nor any officer, director,
employee or agent of the Company, or any other Person associated with or acting
for or on behalf of the Company, has directly or indirectly made or paid any
contribution, gift, bribe, rebate, payoff, kickback or other payment (whether in
money, property or services or any other form) to any Person (i) in order to
gain or pay for favorable treatment in obtaining business or special concessions
or (ii) in violation of any Law. Without limiting the generality of the
foregoing, neither the Company nor any of the other Persons specified above has
taken any action in violation of the Foreign Corrupt Practices Act.

3.28 Related Persons. Except as disclosed in Schedule 3.28, no Related
Party has or had a direct or indirect financial or other interest in (i) any
assets of the Company, (ii) any transaction with the Company or (iii) to the
Company's Knowledge, any Person who has or had business dealings with the
Company (other than as a stockholder owning less than 1% of the outstanding
stock of any such Person whose stock is traded on a national securities
exchange).

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3.29 Broker's Fee. Except for any amounts due to SG Cowen Securities
Corporation, the Company has no Liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement. A true and complete copy of the engagement
agreement between the Company and SG Cowen Securities Corporation has been
provided to Buyer.

3.30 Year 2000 Compliance.

(a) Based on a comprehensive assessment of the Systems that are used
or relied on by the Company in the conduct of its business, the Company
does not know of any such System that will malfunction, will cease to
function, will generate incorrect data or will provide incorrect results
when processing, providing and/or receiving (i) date-related data in, into
or between the twentieth and twenty-first centuries or (ii) date-related
data in connection with any valid date in the twentieth or twenty-first
centuries.

(b) No product or service that is or has been sold, licensed, rendered
or otherwise provided or offered by the Company in the conduct of its
business will cease to function, will generate incorrect data or will
produce incorrect results when processing, providing or receiving (i)
date-related data in, into or between the twentieth and twenty-first
centuries or (ii) date-related data in connection with any valid date in
the twentieth or twenty-first centuries; and, to the knowledge of the
Company, the Company is not and will not be subject to claims or
liabilities arising from any such malfunction, cessation of function,
generation of incorrect data or production of incorrect results.

(c) Based on a comprehensive inquiry of all suppliers and service
providers of the Company, the Company does not know of any inability on the
part of any such supplier or service provider to timely ensure that its own
(and its material suppliers' and service providers') Systems continue to
operate without malfunction, to operate without ceasing to function, to
generate correct data and to produce correct results when processing,
providing and/or receiving (i) date-related data in, into and between the
twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.

(d) Schedule 3.30(d) contains an accurate statement of the Company's
Year 2000 Compliance Program, and (without limiting the generality of the
foregoing) the Company has completed all program steps and taken all
measures described in the Process Compliance Timetable and Frequently Asked
Questions thereof.

(e) For the purposes of this Agreement, "Systems" means, with respect
to a Person, any and all material hardware, software and firmware used by
the Company in the course of its business, including (i) any and all source
and object code; (ii) databases and compilations, including any and all
data and collections of data, whether machine readable or otherwise; (iii)
billing, reporting and other management information systems; (iv) all
descriptions, flow-charts and other work product used to design, plan,
organize and develop any of the foregoing; (v) all content contained on any
Internet site(s) maintained by such Person or any of its subsidiaries; and
(vi) all documentation, including user manuals and training materials,
relating to any of the foregoing.

3.31 Product Recalls.

(a) (i) Except as set forth on Schedule 3.31(a)(i), the Company has
not received any written notice, demand, claim, or inquiry and there is no
action, suit, hearing, proceeding or investigation, of a civil, criminal or
administrative nature (collectively, "Notices") pending, or to the
Company's knowledge, threatened before any Governmental Authority in which
a Product is alleged to have a Defect or relating to or resulting from any
alleged failure to warn or from any alleged breach of express or implied
warranties or representations, nor, to the Company's knowledge, is there
any valid basis for any such demand, claim, action, suit, inquiry, hearing,
proceeding, notice of violation or investigation; (ii) no Notice would, if
adversely determined, have, individually or in the aggregate, a Material
Adverse Effect on the Company; (iii) except as set forth on Schedule
3.31(a)(iii), there has not been any recall, rework, retrofit or post-sale
general consumer warning since December 31, 1996 (collectively, "Recalls")
of any Product, or, to the knowledge of the Company, any investigation or
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consideration of or decision made by any Person concerning whether to
undertake or not to undertake any Recalls and the Company has received no
Notices from any Governmental Entity or any other Person in respect of the
foregoing; and (iv) to the knowledge of the Company, there are currently no
material defects in design, manufacturing, materials or workmanship,
including, any failure to warn, or any breach of express or implied
warranties or representations, which involve any Product that accounts for
a material portion of the Company's sales.

(b) As used herein, (i) "Defect" means a defect or impurity of any
kind, whether in design, manufacture, processing, or otherwise, including,
any dangerous propensity associated with any reasonably foreseeable use of
a Product, or the failure to warn of the existence of any defect, impurity
or dangerous propensity; and (ii) "Product" means any product designed,
manufactured, shipped, sold, marketed, distributed and/or otherwise
introduced into the stream of commerce by or on behalf of the Company.

3.32 Takeover Statutes. The Company has taken all action required to be
taken by it in order to exempt this Agreement and the transactions contemplated
hereby, including the Voting Agreement, and this Agreement and the transactions
contemplated hereby are exempt, from the requirements of any "moratorium,"
"control share," "fair price," "affiliate transaction," "business combination"
or other anti-takeover Laws of Illinois (collectively, "Takeover Statutes").
Section 5/11.75 of the Illinois Business Corporation Act is not applicable, by
virtue of paragraph (b)(4) thereof, to the Company or the transactions
contemplated hereby.

3.33 Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion in (i) the registration statement on Form
S-4 to be filed with the SEC by Buyer in connection with the issuance of Buyer
Common Stock as required by the terms of this Agreement pursuant to the Merger
(the "S-4"), at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, will contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the proxy
statement relating to the Company Shareholder Meeting to be held in connection
with the Merger (the "Proxy Statement") will, at the date mailed to shareholders
and at the time of the Company Shareholder 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. If at any time prior to
the Effective Time any event in respect of the Company, its officers and
directors or any of its subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the S-4, the Company shall
promptly so advise Buyer and such event shall be so described, and the Company
shall cooperate in the prompt filing of such amendment or supplement with the
SEC and, as required by Law, shall promptly disseminate such amendment or
supplement to the shareholders of the Company.

3.34 Accounting Matters. Neither the Company nor, to the Company's
knowledge, any of its Affiliates or Shareholders, has taken or agreed to take
any action or is aware of any fact or circumstance that would be reasonably
likely to prevent the Merger from qualifying as a "pooling of interests" under
APB 16 and the applicable SEC rules and regulations.

3.35 Subsidies. Except as disclosed on Schedule 3.35, no grants, subsidies
or similar arrangements exist directly or indirectly between the Company, on the
one hand, and any domestic or foreign Governmental Authority or any other
Person, on the other hand.

3.36 Disclosure.

(a) As qualified or limited by the exceptions in the Disclosure
Schedule, and solely as so qualified or limited, no statement in this
Article 3 is untrue or omits to state any material fact necessary to make
the statement, in light of the circumstances in which made, not misleading.
When read in conjunction with this Article 3, no statement in the
Disclosure Schedule is untrue or omits to state any material fact necessary
to make any statement in this Article 3 or in the Disclosure Schedule
itself, in light of the circumstances in which made, not misleading.

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(b) No Notice given pursuant to Section 5.8 will contain an untrue
statement or omit to state a material fact necessary to make any statement
in the Notice, in light of the circumstances in which made, not misleading.

(c) All copies of documents delivered by the Company to Buyer and
Subsidiary under this Agreement have been or will be true and complete
copies of the originals.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER AND SUBSIDIARY

In order to induce the Company to enter into this Agreement, Buyer and
Subsidiary represent and warrant to the Company as follows:

4.1 Organization. Each of Buyer and Subsidiary is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and Illinois, respectively, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform its obligations under
all Contracts. Buyer directly owns all of the issued and outstanding shares of
capital stock of the Subsidiary.

4.2 Authority. Each of Buyer and Subsidiary has the power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement by each of
Buyer and Subsidiary have been duly authorized by all necessary action required
by its Organizational Documents and applicable Law.

4.3 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of each of Buyer and Subsidiary, enforceable against them in
accordance with its terms except as enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
Laws affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).

4.4 No Violation. The execution, delivery and performance of this
Agreement by each of Buyer and Subsidiary will not, either directly or
indirectly (and with or without Notice or the passage of time or both): (i)
violate or conflict with its Organizational Documents; (ii) result in a breach
of or default under any Contract to which it is a party or by which it is bound;
or (iii) violate or conflict with any Law or Order to which it is subject.

4.5 No Consent Required. Except as required by HSR, the execution,
delivery and performance of this Agreement by each of Buyer and Subsidiary do
not require any Notice to, filing with, Permit from or other Consent of any
Governmental Authority or other Person.

4.6 Broker's Fee. Neither Buyer nor Subsidiary has any Liability or
obligation to pay any fees or commissions to any broker, finder or agent acting
with respect to the transactions contemplated by this Agreement.

4.7 SEC Reports; Financial Statements. Buyer has filed all required forms,
reports and documents with the SEC since December 31, 1997, each of which has
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, each as in effect on the dates such forms, reports, and documents
were filed. Buyer has heretofore made available to the Company, in the form
filed with the SEC (including, any amendments thereto), (i) its Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1998, (ii) all definitive
proxy statements relating to Buyer's meetings of stockholders (whether annual or
special) held since December 31, 1997 and (iii) all other reports or
registration statements filed by Buyer with the SEC since December 31, 1997 (the
"Buyer SEC Reports"). None of such Buyer SEC Reports, including, any financial
statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the

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circumstances under which they were made, not misleading. The consolidated
financial statements of Buyer included in the Buyer SEC Reports complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC in respect thereof and fairly
present, in conformity with GAAP (except as may be indicated in the notes
thereto), the consolidated financial position of Buyer and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments). Except as and to the extent disclosed in the Buyer SEC
Reports, since December 31, 1998, there has not been any event, occurrence or
development which does or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Buyer.

4.8 Information Supplied. None of the information supplied or to be
supplied by Buyer or Subsidiary for inclusion or incorporation by reference in
(i) the S-4 will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the Proxy
Statement will, at the date mailed to shareholders of the Company and at the
time of the Company Shareholder 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. If at any time prior to
the Effective Time any event in respect of Buyer, its officers and directors, or
any of its subsidiaries should occur which is required to be described in an
amendment of, or a supplement to, the S-4 or the Proxy Statement, Buyer shall
promptly so advise the Company and such event shall be so described, and any
such amendment or supplement to the S-4 (which the Company shall have a
reasonable opportunity to review) shall be promptly filed with the SEC. The S-4
will comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder.

4.9 Accounting Matters. Neither Buyer nor, to Buyer's Knowledge, any of
its Affiliates, has taken or agreed to take any action or is aware of any fact
or circumstance that would be reasonably likely to prevent the Merger from
qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules
and regulations.

ARTICLE 5

EVENTS PRIOR TO CLOSING

5.1 Conduct of Business. Pending Closing:

(a) the Company shall conduct the Business only in the Ordinary Course
of Business and with no less diligence and effort than would be applied in
the absence of this Agreement, use its best efforts to maintain the
Business intact and to preserve its goodwill and advantageous relationships
with customers, distributors, employees, suppliers and other Persons having
business dealings with the Business;

(b) the Company shall not take any affirmative action that results in
the occurrence of an event described in Section 3.23 or fail to take any
reasonable action within its control that would avoid the occurrence of an
event described in Section 3.23; and

(c) the Company will not take any action that would prevent or impede
the Merger from qualifying as a "pooling of interests" under APB 16 and the
applicable SEC rules and regulations.

5.2 Preparation of the S-4 and the Proxy Statement. Buyer and the Company
will, as promptly as practicable, jointly prepare the Proxy Statement in
connection with the vote of the shareholders of the Company in respect of the
Merger. Buyer will, as promptly as practicable, prepare and file with the SEC
the S-4 in connection with the registration under the Securities Act of the
shares of Buyer Common Stock issuable pursuant with the Merger. Buyer and the
Company will, and will cause their accountants and lawyers to, use all
reasonable best efforts to have or cause the S-4 declared effective as promptly
as

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practicable after filing with the SEC, including causing their accountants to
deliver necessary or required instruments such as opinions, consents and
certificates, and will take any other action required or necessary to be taken
under federal or state securities Laws or otherwise in connection with the
registration process (other than qualifying to do business in any jurisdiction
which it is not now so qualified or to file a general consent to service of
process in any jurisdiction). Buyer shall, as promptly as practicable after the
receipt thereof, provide to the Company copies of any written comments and
advise the Company of any oral comments, in respect of the S-4 received from the
staff of the SEC. The Company will provide Buyer with a reasonable opportunity
to review and comment on any amendment or supplement to the Proxy Statement. The
Company will use its reasonable best efforts to cause the Proxy Statement to be
mailed to its shareholders at the earliest practicable date following
effectiveness of the S-4.

5.3 Letters of Accountants.

(a) The Company shall use reasonable best efforts to cause to be
delivered to Buyer a letter of Arthur Andersen LLP, the Company's
independent auditors, dated a date within two business days before the date
on which the S-4 shall become effective and addressed to Buyer, in form and
substance reasonably satisfactory to Buyer and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the S-4.

(b) Buyer shall use reasonable best efforts to cause to be delivered
to the Company a letter of Ernst & Young LLP, Buyer's independent auditors,
dated a date within two business days before the date on which the S-4
shall become effective and addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the S-4.

5.4 Shareholder Meeting. The Company shall take all lawful action to (i)
cause a special meeting of its shareholders (the "Company Shareholder Meeting")
to be duly called and held as soon as practicable after the date of this
Agreement for the purpose of voting on the approval and adoption of this
Agreement and (ii) solicit proxies from its shareholders to obtain the
Shareholder Approval. The Company board of directors shall recommend approval
and adoption of this Agreement and the Merger by the Company's shareholders and,
except as permitted by Section 5.9(b), shall not withdraw, amend, or modify in a
manner adverse to Buyer such recommendation (or announce publicly its intention
to do so). Notwithstanding the foregoing, regardless of whether the Company
board of directors has withdrawn, amended or modified its recommendation that
its shareholders approve and adopt this Agreement, unless this Agreement has
been terminated pursuant to the provisions of Article 8, the Company shall be
required to hold the Company Shareholder Meeting.

5.5 Access to Information. Pending Closing, the Company shall (i) give
Buyer and Subsidiary and their representatives (including counsel, financial
advisors and accountants) access during normal business hours (but without
unreasonable interference with operations) to the Facilities of the Company and
to the Company's Books and Records and other documents and (ii) make the
officers and employees of the Company available for questioning. The Company
shall furnish Buyer and Subsidiary and their representatives with all
information and copies of all documents concerning the Company, the Business and
the Shares, Options and Warrant that Buyer and Subsidiary and their
representatives reasonably request. Neither Buyer nor Subsidiary shall contact
any of the Company's customers without the Company's prior permission, provided
that the Company agrees to cooperate, if Buyer so requests, in arranging and
participating in joint meetings with Company customers. The Company shall
furnish to Buyer and Subsidiary at the earliest time they are available (i) such
monthly financial statements and data routinely prepared by the Company (ii) at
the earliest time they are available, such quarterly and annual financial
statements routinely prepared by the Company.

5.6 Reasonable Best Efforts. (a) Subject to the terms and conditions of
this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate the Merger
and the other transactions contemplated by this Agreement. In furtherance and
not in limitation of the foregoing, each party hereto shall make an appropriate
filing of any notification and report forms under HSR in respect of
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the transactions contemplated hereby as promptly as practicable and in any event
within ten business days of the date hereof and to supply as promptly as
practicable any additional information and documentary material that may be
requested pursuant under HSR and use its reasonable best efforts to take, or
cause to be taken, all other actions consistent with this Section 5.6 necessary
to cause the expiration or termination of the applicable waiting periods under
HSR as soon as practicable.

(b) Each of Buyer and the Company shall, in connection with the
efforts referenced in Section 5.6(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under
HSR, or any other antitrust Law, use its reasonable best efforts to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party; (ii) keep the other
party informed in all material respects of any material communication
received by such party from, or given by such party to, the Federal Trade
Commission ("FTC"), the Antitrust Division of the U.S. Department of
Justice ("DOJ") or any other Governmental Authority and of any material
communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby; and (iii) permit the other party to review any material
communication given by it to, and consult with each other in advance of any
meeting or conference with FTC or DOJ or any such other Governmental
Authority or, in connection with any proceeding by a private party, with
any other Person, and to the extent permitted by the FTC, the DOJ or such
other applicable Governmental Authority or other Person, give the other
party the opportunity to attend and participate in such meetings and
conferences.

(c) In furtherance and not in limitation of the covenants of the
parties contained in Sections 5.6(a) and (b), each of Buyer and the Company
shall use its reasonable best efforts to resolve such objections, if any,
as may be asserted by a Governmental Authority or other Person in respect
of the transactions contemplated hereby under any Law. In connection with
the foregoing, if any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted (or threatened
to be instituted) challenging any transaction contemplated by this
Agreement as violative of any antitrust Law, each of Buyer and the Company
shall cooperate in all respects with each other and use its respective
reasonable best efforts to contest and resist any such action or proceeding
and to have vacated, lifted, reversed or overturned any decree, judgment,
injunction, or other order, whether temporary, preliminary or permanent,
that is in effect and that prohibits, prevents or restricts consummation of
the transactions contemplated by this Agreement. Notwithstanding the
foregoing or any other provision of this Agreement, nothing in this Section
5.6 shall (i) limit a party's right to terminate this Agreement pursuant to
Article 8 so long as such party has up to then complied in all material
respects with its obligations under this Section 5.6, or (ii) require Buyer
to dispose or hold separate any part of its or the Company's business or
operations (or a combination of Buyer's and the Company's business or
operations), or comply with any other material restriction affecting its
business or operations.

(d) The Company agrees that in connection with any litigation which
may be brought against the Company or its directors relating to the
transactions contemplated hereby, the Company will keep Buyer, and any
counsel which Buyer may retain at its own expense, informed of the course
of such litigation, to the extent Buyer is not otherwise a party thereto.
The Company agrees that it will consult with Buyer prior to entering into
any settlement or compromise of any such litigation, and that no such
settlement or compromise will be entered into without Buyer's prior written
consent, which consent shall not be unreasonably withheld.

5.7 Other Filings. As promptly as practicable after the date of this
Agreement, the Company shall give each Notice, make each filing and obtain each
Permit or other Consent listed on Schedule 3.6, if any. To the extent that the
cooperation of Buyer and Subsidiary is necessary or, in the Company's reasonable
judgment, desirable, Buyer and Subsidiary shall cooperate with the Company in
regard to all Notices, filings, Permits and other Consents listed on Schedule
3.6.

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5.8 Notice of Developments. Pending Closing, the Company shall promptly
give Notice to Buyer and Subsidiary of: (i) any fact or circumstance of which
the Company becomes aware that causes or constitutes an inaccuracy in or breach
of any of the Company's representations and warranties in Article 3 on the date
of this Agreement; (ii) any fact or circumstance of which the Company becomes
aware that would cause or constitute an inaccuracy in or breach of any of the
Company's representations and warranties in Article 5 if its representations and
warranties were made on and as of the date of occurrence or discovery of the
fact or circumstance; (iii) any breach of or default under Section 5.1 or any of
the Company's other obligations in this Article 5; or (iv) the occurrence of any
event that may make satisfaction of any of the conditions in Section 6.1 or 6.2
impossible or unlikely; provided, however, that the delivery of any notice
pursuant to this Section 5.8 shall not cure such breach or non-compliance or
limit or otherwise affect the rights, obligations or remedies available
hereunder to Buyer and Subsidiary.

5.9 Acquisition Proposals.

(a) The Company will not, nor will it authorize or permit any officer,
director or employee of or any investment banker, attorney, accountant or
other advisor or representative of, the Company to, directly or indirectly,
(i) solicit, initiate or encourage the submission of any Acquisition
Proposal or (ii) participate in any discussions or negotiations regarding,
or furnish to any Person any information in respect of, or take any other
action to facilitate, any Acquisition Proposal or any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal. The Company shall notify Buyer of any
Acquisition Proposal (including the material terms and conditions thereof
and the identity of the Person making it) as promptly as practicable after
its receipt thereof, and shall provide Buyer with a copy of any written
Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform Buyer on a prompt basis of the status of any discussions
or negotiations with such a third party, and any material changes to the
terms and conditions of such Acquisition Proposal, and shall promptly give
Buyer a copy of any information delivered to such Person which has not
previously been reviewed by Buyer. Immediately after the execution and
delivery of this Agreement, the Company will, and will use its reasonable
best efforts to cause its affiliates and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
agents and representatives to, cease and terminate any existing activities,
discussions or negotiations with any parties conducted heretofore in
respect of any possible Acquisition Proposal. The Company shall take all
necessary steps to promptly inform the individuals or entities referred to
in the first sentence of this Section 5.9 of the obligations undertaken in
this Section 5.9. "Acquisition Proposal" means an inquiry, offer or
proposal regarding any of the following (other than the transactions
contemplated by this Agreement) involving the Company: (w) any merger,
consolidation, share exchange, recapitalization, business combination or
other similar transaction; (x) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of all or substantially all the assets of the
Company in a single transaction or series of related transactions; (y) any
tender offer or exchange offer for 20% or more of the outstanding Shares or
the filing of a registration statement under the Securities Act in
connection therewith; or (z) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of
the foregoing.

(b) The Company board of directors will not withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Buyer, its approval
or recommendation of this Agreement or the Merger unless the Company board
of directors, after consultation with independent legal counsel, determines
in good faith that such action is necessary to avoid a breach by the
Company board of directors of its fiduciary duties to the Company's
shareholders under applicable Law. Nothing contained in this Section 5.9(b)
shall prohibit the Company from making any disclosure to the Company's
shareholders which, in the good faith reasonable judgment of the Company
board of directors, after consultation with independent legal counsel, is
required under applicable Law; provided, that except as otherwise permitted
in this Section 5.9(b), the Company may not withdraw or modify, or propose
to withdraw or modify, its position with respect to the Merger or approve
or recommend, or propose to approve or recommend, an Acquisition Proposal.
Notwithstanding anything contained in this Agreement to the contrary, any
action by the Company board of directors permitted

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by, and taken in accordance with, this Section 5.9(b) shall not constitute
a breach of this Agreement by the Company. Nothing in this Section 5.9(b)
shall (i) permit the Company to terminate this Agreement (except as
provided in Article 8) or (ii) affect any other obligations of the Company
under this Agreement.

5.10 Public Announcements. Each of Buyer, Subsidiary and the Company will
consult with one another before issuing any press release or otherwise making
any public statements in respect of the transactions contemplated by this
Agreement, including the Merger, 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 or by obligations pursuant to any listing agreement
with the NYSE, as determined by Buyer, Subsidiary, or the Company, as the case
may be.

5.11 Tax-Free Reorganization Treatment. The parties hereto intend that the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. Each of the parties hereto shall use its reasonable
best efforts to cause the Merger to so qualify. The Company and Buyer will
provide or cause to be provided to Weil, Gotshal & Manges LLP and Johnson and
Colmar all representation letters described in Section 6.2(f) and 6.3(c).

5.12 Employee Matters.

(a) Buyer will cause the Surviving Corporation to honor the
obligations of the Company or any of its subsidiaries under the provisions
of all Employee Benefit Plans and employee arrangements, subject to Buyer's
right to amend or terminate any such benefit plan or employee arrangement
in accordance with its terms. After the Effective Time, the employees of
the Company will be eligible to participate in the Company's Employee
Benefit Plans or, if so determined by Buyer, Buyer's applicable Employee
Benefit Plans, as such plans may be in effect from time to time, and at
Buyer's sole discretion, will become employees of Buyer. At the Buyer's
sole discretion and with respect to each such employee of the Company,
service with the Company or any of its subsidiaries may be counted for
purposes of determining periods of eligibility to participate or to vest in
benefits under any applicable Employee Benefit Plan of Buyer. At the
Buyer's sole discretion, administrative functions, including but not
limited to payroll processing, may be transferred to processors of the
Buyer's choosing.

(b) The Company shall, not less than five days prior to the scheduled
Closing Date, terminate its 401(k) retirement plan, effective immediately
prior to the Effective Time.

5.13 Affiliate Letters. Section 5.13 of the Disclosure Schedule sets forth
a list of all Persons who are, and all Persons who to the Company's knowledge
will be at the Closing Date, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company will cause such list to be updated
promptly through the Closing Date. Not later than 45 days prior to the date of
the Company Shareholder Meeting, the Company shall cause its "affiliates" to
deliver to Buyer a Company Affiliate Agreement substantially in the form
attached as EXHIBIT D.

5.14 Fees and Expenses. If the Merger is consummated, the Surviving
Corporation shall pay the amounts due from the Company to SG Cowen Securities
Corporation and shall also pay the legal and accounting fees and expenses of the
Company in connection with the Merger (the total of which amounts shall not
exceed $4,700,000). If the Merger is not consummated, all Expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such Expenses; provided, however, whether or not the
Merger is consummated, (a) expenses incurred in connection with the filing,
printing and mailing of the Proxy Statement and the S-4 shall be shared equally
by the Company and Buyer, (b) the filing fees required under the HSR shall be
shared equally by the Company and Buyer and (c) if applicable, as provided in
Section 8.5. As used in this Agreement, "Expenses" includes all out-of-pocket
expenses (including all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its affiliates) incurred
by a party or on its behalf in connection with, or related to, the
authorization, preparation, negotiation, execution and performance of this
Agreement and the transactions contemplated hereby, including the preparation,
filing,

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printing and mailing of the Proxy Statement and the S-4 and the solicitation of
shareholder approvals and all other matters related to the transactions
contemplated hereby.

5.15 Listing of Stock. Buyer shall use its reasonable best efforts to
cause the shares of Buyer Common Stock to be issued in connection with the
Merger to be approved for listing on the NYSE on or prior to the Closing Date,
subject to official notice of issuance.

5.16 Comdisco Release. As soon as practicable following the date of this
Agreement, and in any event prior to the Closing Date, the Company shall (i)
secure from Comdisco Ventures releases of all liens encumbering the intellectual
property or other assets of the Company and reassignments to the Company of any
rights in the intellectual property or other assets of the Company previously
assigned by the Company to Comdisco Ventures and (ii) will file appropriate
documents evidencing such releases and reassignments with the appropriate
Governmental Authorities. Such releases and reassignments shall include a
statement by Comdisco Ventures that it has not conferred any rights (including
ownership or by license) in the intellectual property or other assets of the
Company to any third party.

ARTICLE 6

CONDITIONS TO CLOSING

6.1 Conditions of Each Party. The respective obligations of each party to
consummate the Merger and to take the other actions that they are respectively
required to take at Closing are subject to the satisfaction or written waiver by
each of the parties of each of the following conditions prior to or at Closing:

(a) this Agreement and the Merger shall have received Shareholder
Approval;

(b) all applicable waiting periods under HSR shall have expired or
otherwise been terminated;

(c) since the date of this Agreement, no Suit shall have been
initiated or Threatened that challenges or seeks damages or other relief in
connection with the Merger or that could have the effect of preventing,
delaying, making illegal or otherwise interfering with the Merger;

(d) the S-4 shall have been declared effective by the SEC and shall be
effective at the Effective Time, and no stop order suspending effectiveness
shall have been issued; no action, suit, proceeding or investigation by the
SEC to suspend the effectiveness thereof shall have been initiated and be
continuing; and all necessary approvals under state securities Laws or the
Securities Act or Exchange Act relating to the issuance or trading of the
Buyer Common Stock shall have been received; and

(e) the Buyer Common Stock required to be issued hereunder shall have
been approved for listing on the NYSE, subject only to official notice of
issuance.

6.2 Conditions of Buyer and Subsidiary. The respective obligations of
Buyer and Subsidiary to consummate the Merger and to take the other actions that
they are respectively required to take at Closing are subject to the
satisfaction of each of the following conditions prior to or at Closing:

(a) the Company's representations and warranties in Article 3 shall be
true in all material respects on the Closing Date as if they were made at
and as of the Closing;

(b) the Company shall have executed and delivered all of the documents
and instruments that it is required to execute and deliver or enter into
prior to or at Closing, and shall have performed, complied with, or
satisfied in all material respects all of its other obligations, agreements
and conditions under this Agreement that it is required to perform, comply
with or satisfy prior to or at Closing;

(d) the Company Legal Opinion has been rendered and delivered to
Buyer;

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(e) holders of Shares representing no more than five percent of the
outstanding Common Stock, assuming for such purpose conversion of all
outstanding Preferred Stock, shall have exercised and not withdrawn,
forfeited or otherwise permitted to lapse appraisal, dissenter's or similar
rights under applicable Law with respect to their Shares in connection with
the Merger;

(f) Buyer and Subsidiary shall have received the opinion of Weil,
Gotshal & Manges LLP, dated the Effective Time, to the effect that the
Merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code. The issuance of such opinion shall be
conditioned on the receipt by such tax counsel of representation letters
from each of Buyer, Subsidiary and the Company, in each case, in form and
substance reasonably satisfactory to such counsel. Each such representation
letter shall be dated on or before the date of such opinion and shall not
have been withdrawn or modified in any material respect;

(g) the Company shall have received and delivered to Buyer a letter
from Arthur Andersen LLP dated as of the Closing Date, stating that the
accounting of the Merger as a "pooling of interests" under APB 16 and the
applicable SEC rules and regulations is appropriate if the Merger is
consummated as contemplated by this Agreement. Buyer shall have received a
letter from Ernst & Young LLP, dated as of the Closing Date, stating that
accounting of the Merger as a "pooling of interests" under APB 16 and the
applicable SEC rules and regulations is appropriate if the Merger is
consummated as contemplated by this Agreement; and

(h) the Warrant shall have been exercised, and the Company shall have
issued 30,833 shares of Common Stock to the holder thereof.

Buyer and Subsidiary may waive any condition specified in this Section 6.2
by a written waiver delivered to the Company at any time prior to or at
Closing.

6.3 Conditions of the Company. The obligation of the Company to consummate
the Merger and to take the other actions that it is required to take at Closing
is subject to the satisfaction of each of the following conditions prior to or
at Closing:

(a) the representations and warranties of Buyer and Subsidiary in
Article 4 shall be true and correct in any material respects on the Closing
Date as if they were made at and as of the Closing;

(b) the Buyer Legal Opinion shall have been rendered and delivered to
the Company;

(c) the Company shall have received the opinion of Johnson and Colmar,
dated the Effective Time, to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The issuance of such opinion shall be conditioned on the receipt by
such tax counsel of representation letters from each of Buyer, Subsidiary
and the Company, in each case, in form and substance reasonably
satisfactory to such counsel. Each such representation letter shall be
dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect; and

(d) Buyer and Subsidiary shall have executed and delivered all of the
documents and instruments that they are required to execute and deliver or
enter into prior to or at Closing, and shall have performed, complied with
or satisfied in all material respects all of their other obligations,
agreements and conditions under this Agreement that they are required to
perform, comply with or satisfy prior to or at Closing.

The Company may waive any condition specified in this Section 6.3 by a
written waiver delivered to Buyer and Subsidiary at any time prior to or at
Closing.

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ARTICLE 7

SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; ESCROW PROVISIONS

7.1 Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any right of Buyer, Subsidiary or the Company
(whether or not exercised) to investigate the affairs of Buyer, Subsidiary or
the Company, each party shall have the right to rely fully upon the
representations, warranties, covenants and agreements of the other party
contained in this Agreement or in any instrument required to be delivered
hereunder; provided, however, that, except in the case of fraud (i.e., an
intentional breach of a representation, warranty, covenant or agreement, but
excluding any negligent or reckless breach), no reliance can be made on, or
claim made in respect of, any representation, warranty, covenant or agreement
specific compliance with which was waived in writing, including the waiver of
any related closing condition contained in Article 6. The covenants and
agreements of the Company, Buyer and Subsidiary contained in this Agreement or
in any instrument delivered pursuant to this Agreement that by their terms apply
or are to be performed in whole or in part after the Effective Time shall
survive the Effective Time. The representations and warranties of the Company,
Buyer and Subsidiary contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue until the
filing of Buyer's Annual Report on Form 10-K for the fiscal year ending December
31, 1999, except for the representations and warranties set forth in Sections
3.12, 3.15, 3.17, 3.19, 3.22, 3.24, 3.30, which shall continue until the first
anniversary of the Closing Date (the "Expiration Date"). Each of the parties
hereto agrees that, except for the representations and warranties contained in
this Agreement, none of Buyer, Subsidiary or the Company has made any
representations or warranties, and except for the representations and warranties
contained in this Agreement, each of Buyer, Subsidiary and the Company
acknowledges that no representations or warranties have been made by, and it has
not relied upon any representations or warranties made by, any of the parties
hereto or any of their respective officers, directors, employees, agents,
financial and legal advisors or other representatives (collectively,
"Representatives") with respect to this Agreement and the transactions
contemplated hereby, and the documents and instruments referred to herein,
notwithstanding the delivery or disclosure to such party or its Representatives
of any documentation or other information with respect to any one or more of the
foregoing. The inclusion of any entry on the Disclosure Schedule shall not
constitute an admission by, or agreement of, the Company that such matter is
material to the Company.

7.2 Escrow Provisions.

(a) Establishment of the Escrow Fund. "Escrow Amount" and "Escrow
Fund" means the number of shares of Buyer Common Stock obtained by
multiplying (i) the aggregate number of shares of Buyer Common Stock
issuable by Buyer at the Effective Time to holders of Shares in accordance
with Sections 2.4(c) by (ii) 5%. At the Effective Time, the Escrow Amount,
without any act of any shareholder, will be deposited with Harris Trust and
Savings Bank (the "Depositary Agent") (plus thereafter a proportionate
share of any additional shares of Buyer Common Stock as may be issued upon
any stock splits, stock dividends or recapitalizations effected by Buyer
following the Effective Time). The Escrow Fund will be governed by the
terms set forth herein and shall be maintained at Buyer's sole cost and
expense. The portion of the Escrow Amount contributed on behalf of each
Shareholder shall be in proportion to the aggregate number of shares of
Buyer Common Stock to which such holder would otherwise be entitled under
Section 2.4(c). For Tax purposes, the Escrow Fund shall be treated as owned
by the Shareholders.

(b) Recourse to the Escrow Fund. The Escrow Fund shall be available
(and shall be the sole and exclusive remedy after the Effective Time) to
compensate Buyer and the Surviving Corporation, and their respective
officers, directors, employees, agents and affiliates, for any and all
Losses (whether or not involving a Third Party Claim), incurred or
sustained by Buyer or the Surviving Corporation, their respective officers,
directors, employees, agents or affiliates, directly or indirectly, as a
result of any inaccuracy or breach of any representation, warranty,
covenant or agreement of the Company contained herein which survived the
Effective Time in accordance with this Agreement;

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provided, however, that Buyer and the Surviving Corporation may not make
any claims against the Escrow Fund unless the aggregate Losses incurred or
sustained exceed $250,000 (at which such time claims may be made for all
such Losses incurred or sustained in excess of such amount). The
Shareholders shall not have any liability under this Agreement of any sort
whatsoever in excess of the Escrow Fund. For purposes of this Agreement,
"Losses" shall mean all losses, expenses (including reasonable attorneys'
fees and expenses), damages, liabilities, fines, penalties, judgments,
actions, claims and costs including any Tax imposed on any payment received
from the Escrow Fund as well as Taxes resulting from the circumstances
giving rise to the Loss.

(c) Escrow Period; Distribution of Escrow Fund upon Termination of
Escrow Period. Subject to the following requirements, the Escrow Fund shall
be in existence immediately following the Effective Time and shall
terminate at 5:00 p.m., Dallas Time, on the Expiration Date (the period of
time from the Effective Time through and including the Expiration Date is
referred to herein as the "Escrow Period"); and all shares of Buyer Common
Stock remaining in the Escrow Fund shall be distributed as set forth in the
last sentence of this Section 7.2(c); provided, however, that the Escrow
Period shall not terminate with respect to such amount (or some portion
thereof) that is necessary in the reasonable judgment of Buyer, subject to
the objection of the Shareholder Representatives and the subsequent
resolution of the matter in the manner as provided in Section 7.2(g)
hereof, to satisfy any unsatisfied written claims under this Section 7.2
concerning facts and circumstances existing prior to the termination of
such Escrow Period which claims are specified in any Officer's Certificate
delivered to the Depositary Agent prior to termination of such Escrow
Period. As soon as all such claims, if any, have been resolved, the
Depositary Agent shall deliver to the Shareholders the remaining portion of
the Escrow Fund not required to satisfy such claims. Deliveries of shares
of Buyer Common Stock remaining in the Escrow Fund to the Shareholders
pursuant to this Section 7.2(c) shall be made ratably in proportion to the
respective contributions on their behalf to the Escrow Fund and Buyer shall
use all its commercially reasonable efforts to have such shares delivered
within five (5) business days of such resolution. In the case of any
entitlement to a fractional share of Buyer Common Stock upon distribution,
each such Shareholders shall receive in lieu thereof a cash payment equal
(i) such fractional part of a share of Buyer Common Stock multiplied by
(ii) the closing price on the NYSE (as reported in the New York City
edition of the Wall Street Journal or, if not reported thereby, another
nationally recognized source) for a share of Buyer Common Stock on the last
trading day preceding such distribution date. Buyer shall make available to
the Depositary Agent the funds necessary to make such payments in lieu of
fractional shares, and in connection therewith, the Depositary Agent will
deliver to Buyer the shares of Buyer Common Stock to which such payments
relate.

(d) Protection of Escrow Fund. The Depositary Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, shall treat such fund
as a trust fund in accordance with the terms of this Agreement and not as
the property of Buyer and shall hold and dispose of the Escrow Fund only in
accordance with the terms hereof. Any shares of Buyer Common Stock, or
other securities which, by their terms, are or may be exercisable,
convertible or exchangeable for or into Buyer Common Stock, that are issued
or distributed by Buyer ("New Shares") in respect of Buyer Common Stock in
the Escrow Fund which have not been released from the Escrow Fund shall be
added to the Escrow Fund. New Shares issued in respect of shares of Buyer
Common Stock which have been released from the Escrow Fund shall not be
added to the Escrow Fund, but shall be distributed to the record holders
thereof. Cash dividends on Buyer Common Stock shall not be added to the
Escrow Fund, but shall be distributed to the record holders of the Buyer
Common Stock on the record date set for any such dividend. Each Shareholder
shall have voting rights with respect to the shares of Buyer Common Stock
contributed to the account of such Shareholder within the Escrow Fund (and
on any voting securities added to the Escrow Fund in respect of such shares
of Buyer Common Stock).

(e) Claims Upon Escrow Fund. Upon receipt by the Depositary Agent, at
any time on or before the last day of the Escrow Period, but in each case
prior to the expiration of the survival period for the applicable
representation, warranty, covenant or agreement as set forth in Section
7.1, of an

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Officer's Certificate delivered by the Buyer: (A) stating that Buyer has
paid or properly accrued or reasonably anticipates that it will have to pay
or accrue Losses, directly or indirectly, as a result of any inaccuracy or
breach of any representation, warranty, covenant or agreement of the
Company contained herein, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each
such item was paid or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation or breach of warranty,
agreement or covenant to which such item is related (including the specific
provision breached), the Depositary Agent shall, subject to the provisions
of Section 7.2(f) hereof, deliver to Buyer out of the Escrow Fund, as
promptly as practicable, shares of Buyer Common Stock held in the Escrow
Fund in an amount equal to such Losses. For the purposes of determining the
number of shares of Buyer Common Stock to be delivered to Buyer out of the
Escrow Fund pursuant to this Section 7.2(e), the shares of Buyer Common
Stock shall be valued on a per share basis at the Average Buyer Stock
Price.

(f) Objections to Claims. At the time of delivery by Buyer of any
Officer's Certificate to the Depositary Agent, a duplicate copy of such
certificate shall be delivered to the Shareholder Representatives and for a
period of thirty (30) days after such delivery, the Depositary Agent shall
make no delivery to Buyer of any Escrow Amounts pursuant to Section 7.2(e)
hereof unless the Depositary Agent shall have received written
authorization from the Shareholder Representatives to make such delivery.
After the expiration of such thirty (30) day period, the Depositary Agent
shall make delivery of shares of Buyer Common Stock from the Escrow Fund in
accordance with Section 7.2(e) hereof, provided that no such payment or
delivery may be made if the Shareholder Representatives shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Depositary Agent prior to the
expiration of such thirty (30) day period.

(g) Resolution of Conflicts. In case the Shareholder Representatives
shall object in writing to any claim or claims made in any Officer's
Certificate, the Shareholder Representatives and Buyer shall attempt in
good faith to agree upon the rights of the respective parties with respect
to each of such claims. If the Shareholder Representatives and Buyer should
so agree, joint written instructions setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the
Depositary Agent. The Depositary Agent shall be entitled to rely on any
such instructions and distribute shares of Buyer Common Stock from the
Escrow Fund in accordance with the terms thereof. If no such agreement can
be reached after good faith negotiation, either Buyer or the Shareholder
Representatives may commence litigation or, upon written consent of Buyer
and the Shareholder Representatives, binding arbitration to resolve the
dispute.

7.3 Shareholder Representatives; Power of Attorney.

(a) Shareholder Representatives. In the event that the Merger is
approved by the Shareholders, effective upon such vote, and without further
act of any Shareholder, the Shareholder Representatives shall be appointed
as agents and attorneys-in-fact, any two of which may take actions in such
capacity without the joinder of the others, for each Shareholder (except
such Shareholders, if any, as shall have perfected their dissenters' rights
under Illinois Law), for and on behalf of Shareholders, to give and receive
notices and communications, to authorize delivery to Buyer of shares of
Buyer Common Stock from the Escrow Fund in satisfaction of claims by Buyer,
to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand litigation or arbitration and
comply with orders and awards of courts and arbitrators with respect to
such claims, and to take all actions necessary or appropriate in the
judgment of the Shareholder Representatives for the accomplishment of the
foregoing. Such agency may be changed by the Shareholders from time to time
upon not less than thirty (30) days prior written notice to Buyer;
provided, however, that the Shareholder Representatives may not be removed
unless holders of a two-thirds interest in the Escrow Fund agree to such
removal and to the identity of the substituted shareholder representatives.
Any vacancy in the position of Shareholder Representative shall be filled
by John Patience. No bond shall be required of the Shareholder
Representatives, and the Shareholder Representatives shall not receive
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compensation for their services. Notices or communications to or from the
Shareholder Representatives shall constitute notice to or from each of the
Shareholders.

(b) Exculpation. The Shareholder Representatives shall not be liable
for any act done or omitted hereunder as Shareholder Representatives while
acting in good faith and in the exercise of reasonable judgment.

(c) Actions of the Shareholder Representatives. A decision, act,
consent or instruction of any two of the Shareholder Representatives shall
constitute a decision for all of the Shareholders for whom a portion of the
Escrow Amount otherwise issuable to them are deposited in the Escrow Fund,
and shall be final, binding and conclusive upon each of such Shareholders,
and the Depositary Agent and Buyer may rely upon any such decision, act,
consent or instruction of the Shareholder Representatives as being the
decision, act, consent or instruction of every such shareholder of the
Company. The Depositary Agent and Buyer are hereby relieved from any
liability to any Person for any acts done by them in accordance with such
decision, act, consent or instruction of the Shareholder Representatives.

7.4 Third Party Claims. In the event Buyer or the Surviving Corporation
receives written notice of a third-party claim (a "Third Party Claim") which
Buyer reasonably expects may result in a demand against the Escrow Fund, Buyer
shall provide the Shareholder Representatives with reasonably prompt written
notice thereof. The Shareholder Representatives, as representative for the
Shareholders, shall have the right to participate in or, by giving written
notice to Buyer, to assume the defense of any Third Party Claim at the expense
of the Escrow Fund and by counsel selected by the Shareholder Representatives
(which counsel must be reasonably satisfactory to Buyer), and Buyer will
cooperate in good faith (and shall be permitted to participate at Buyer's
expense) in such defense; provided, however, that the Shareholder
Representatives shall not be entitled to assume control of the defense of any
Third Party Claim that (i) could reasonably be expected to have any impact on
the ongoing operations or goodwill of the Surviving Corporation or Buyer or
their intellectual property or (ii) could reasonably be expected to result in
Losses in excess of the Escrow Fund. Buyer shall have the right in its sole
discretion to settle any Third Party Claim contemplated by clause (i) or (ii)
above; provided, however, that if Buyer settles any such Third Party Claim
without the Shareholder Representatives' written consent (which consent shall
not be unreasonably withheld or delayed), Buyer may not make a claim against the
Escrow Fund with respect to the amount of Losses incurred by Buyer in such
settlement unless the Shareholder Representatives unreasonably withheld or
delayed such consent; provided, further, that the Shareholder Representatives
may not settle any Third Party Claim without Buyer's written consent (which
consent shall not be unreasonably withheld or delayed). In the event that the
Shareholder Representatives have consented to any such settlement, the
Shareholder Representatives shall have no power or authority to object under any
provision of this Article 7 to the amount of any claim by Buyer against the
Escrow Fund with respect to the amount of Losses incurred by Buyer in such
settlement as consented to by the Shareholder Representatives.

7.5 Depositary Agent's Duties.

(a) Limitation on Duties of Depositary Agent. The Depositary Agent
shall be obligated only for the performance of such duties as are
specifically set forth herein, and as set forth in any additional written
escrow instructions which the Depositary Agent may receive after the date
of this Agreement which are signed by an officer of Buyer and the
Shareholder Representatives, and may rely and shall be protected in relying
or refraining from acting, in good faith, on any instrument reasonably
believed to be genuine and to have been signed or presented by the proper
party or parties. The Depositary Agent shall not be liable for any act done
or omitted hereunder as Depositary Agent while acting in good faith and in
the exercise of reasonable judgment, and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith.

(b) Compliance with Orders. The Depositary Agent is hereby expressly
authorized to comply with and obey orders of any court of law or
Governmental Authority or regulatory authority, notwithstanding any
notices, warnings or other communications from any party or any other
Person to
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the contrary. In case the Depositary Agent obeys or complies with any such
order, the Depositary Agent shall not be liable to any of the parties
hereto or to any other Person by reason of such compliance, notwithstanding
any such order being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction or proper
authority.

(c) Limitations on Liability of Depositary Agent. The Depositary Agent
shall not be liable: in any respect on account of the identity, authority
or rights of the parties executing or delivering or purporting to execute
or deliver this Agreement or any documents or papers deposited or called
for hereunder; or for the expiration of any rights under any statute of
limitations with respect to this Agreement or any documents deposited with
the Depositary Agent.

(d) Good Faith of Depositary Agent. In performing any duties under the
Agreement, the Depositary Agent shall not be liable to any party for
damages, losses or expenses, except for damages, losses or expenses
attributable to the gross negligence or willful misconduct of the
Depositary Agent. The Depositary Agent shall not incur any such liability
for (i) any act or failure to act made or omitted in good faith, or (ii)
any action taken or omitted in reliance upon any instrument, including any
written statement or affidavit provided for in this Agreement that the
Depositary Agent shall in good faith believe to be genuine, nor will the
Depositary Agent be liable or responsible for forgeries, fraud,
impersonations or determining the scope of any representative authority. In
addition, the Depositary Agent may consult with legal counsel in connection
with the Depositary Agent's duties under this Agreement and shall be fully
protected in any act taken, suffered or permitted by the Depositary Agent
in good faith in accordance with the advice of counsel. The Depositary
Agent is not responsible for determining and verifying the authority of any
Person acting or purporting to act on behalf of any party to this
Agreement.

(e) Non-responsibility of Depositary Agent. If any controversy arises
between the parties to this Agreement, or with any other party, concerning
the subject matter of this Agreement, its terms or conditions, the
Depositary Agent will not be required to determine the controversy or to
take any action regarding it. The Depositary Agent may hold all documents
and shares of Buyer Common Stock and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in
the Depositary Agent's discretion, the Depositary Agent may be required,
despite what may be set forth elsewhere in this Agreement. In such event,
the Depositary Agent will not be liable for any damages. Furthermore, the
Depositary Agent may at its option, file an action of interpleader
requiring the parties to answer and litigate any claims and rights among
themselves. The Depositary Agent is authorized to deposit with the clerk of
the court all documents and shares of Buyer Common Stock held in escrow,
except all costs, expenses, charges and reasonable attorneys' fees incurred
by the Depositary Agent due to the interpleader action and which Buyer and
the Shareholder Representatives, on behalf of the Shareholders, jointly and
severally agree to pay. Upon initiating such action, the Depositary Agent
shall be fully released and discharged of and from all obligations and
liability imposed by the terms of this Agreement.

(f) Indemnification of Depositary Agent. Buyer agrees to indemnify and
hold the Depositary Agent harmless against any and all Losses incurred by
the Depositary Agent in connection with the performance of the Depositary
Agent's duties under this Agreement, including but not limited to any
litigation from this Agreement or involving its subject matter.

(g) Resignation of Depositary Agent. The Depositary Agent may resign
at any time upon giving at least thirty (30) days' written notice to the
parties; provided, however, that no such resignation shall become effective
until the appointment of a successor Depositary Agent which shall be
accomplished as follows: the parties shall use their best efforts to
mutually agree on a successor Depositary Agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
Depositary Agent within such time, the Depositary Agent shall have the
right to appoint a successor Depositary Agent authorized to do business in
the State of New York. The successor Depositary Agent shall execute and
deliver an instrument accepting such appointment and it shall, without
further acts, be vested with all the estates, properties, rights, powers
and duties of the

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predecessor Depositary Agent as if originally named as Depositary Agent.
Upon such succession, the original Depositary Agent shall be discharged
from any further duties and liability under this Agreement.

(h) Fees. All fees of the Depositary Agent for performance of its
duties hereunder shall be paid by Buyer. In the event that the conditions
of this Agreement are not promptly fulfilled, or if the Depositary Agent
renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms, or if any controversy
arises, or if the Depositary Agent is made a party to, or intervenes in,
any action or proceeding pertaining to the Escrow Fund or its subject
matter, the Depositary Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorneys' fees and
expenses occasioned by such default, delay, controversy or action or
proceeding.

ARTICLE 8

TERMINATION, AMENDMENT AND WAIVER

8.1 Termination by Mutual Agreement. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the Shareholder Approval, by mutual written consent of the
Company and Buyer by action of their respective boards of directors.

8.2 Termination by Either Buyer or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the board of directors of either Buyer or the Company if:

(a) the Merger shall not have been consummated by December 31, 1999,
whether such date is before or after the date of the Shareholder Approval
(the "Termination Date"); provided, however, that if any condition of
Closing set forth in Section 6.1 that remains reasonably capable of
satisfaction has not been fulfilled or waived prior to December 31, 1999,
the Termination Date shall be automatically extended to February 28, 2000;

(b) the Shareholder Approval shall not have been obtained at the
Company Shareholder Meeting or at any adjournment or postponement thereof;
or

(c) any Law permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and
non-appealable (whether before or after the Shareholder Approval);

provided, however, that the right to terminate this Agreement pursuant to
this Section 8.2 shall not be available to any party that has breached in
any material respect its obligations under this Agreement in any manner
that shall have proximately contributed to the occurrence of the failure of
the Merger to be consummated.

8.3 Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the Shareholder Approval, by action of the Company board of directors
if:

(a) there is a breach by Buyer or Subsidiary of any representation,
warranty, covenant or agreement contained in this Agreement that cannot be
cured and would cause a condition set forth in Section 6.3(a) or 6.3(b) to
be incapable of being satisfied as of the Termination Date; or

(b) the actual Average Buyer Stock Price (determined without regard to
clause (i) of the proviso to such definition (the "Minimum Price Proviso"))
is less than the Minimum Average Buyer Stock Price and the Company gives
written notice to Buyer during the 24 hour period following the calculation
of the Average Buyer Stock (a "Company Termination Notice") that the
Company elects to terminate this Agreement; provided, however, that Buyer
shall have the right during the 24 hour period following receipt of a
Company Termination Notice to give written notice to the Company (the
"Top-Up Notice") that Buyer elects to waive the application of the Minimum
Price Proviso in the calculation of the Average Buyer Stock Price, in which
case the Minimum Price Proviso shall be
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disregarded in the calculation of the Average Buyer Stock Price for all
purposes under this Agreement. Upon delivery of the Top-Up Notice, the
Company Termination Notice shall be null and void.

8.4 Termination by Buyer. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time by Buyer, if:

(a) there is a breach by the Company of any representation, warranty,
covenant or agreement contained in this Agreement that cannot be cured and
would cause a condition set forth in Section 6.2(a) or 6.2(b) to be
incapable of being satisfied as of the Termination Date;

(b) the actual Average Buyer Stock Price (determined without regard to
clause (ii) of the proviso to such definition (the "Maximum Price
Proviso")) is greater than the Maximum Average Buyer Stock Price and Buyer
gives written notice to the Company during the 24 hour period following the
calculation of the Average Buyer Stock (a "Buyer Termination Notice") that
Buyer elects to terminate this Agreement; provided, however, that the
Company shall have the right during the 24 hour period following receipt of
a Buyer Termination Notice to give written notice to Buyer (the "Reduction
Notice") that the Company elects to waive the application of the Maximum
Price Proviso in the calculation of the Average Buyer Stock Price, in which
case the Maximum Price Proviso shall be disregarded in the calculation of
the Average Buyer Stock Price for all purposes under this Agreement. Upon
delivery of the Reduction Notice, the Buyer Termination Notice shall be
null and void; or

8.5 Effect of Termination and Abandonment.

(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article 8, this Agreement (other than this
Section 8.5, Section 5.14 and Article 9) shall become void and of no effect
with no liability on the part of any party hereto (or of any of its
directors, officers, employees, agents, legal and financial advisors, or
other representatives); provided, however, that except as otherwise
provided herein, no such termination shall relieve any party hereto of any
liability or damages resulting from any breach of this Agreement.

(b) In the event that within 12 months of the termination of this
Agreement pursuant to Section 8.2(a), 8.2(b), 8.4(a) or 8.4(b) any
Acquisition Proposal by a third party is entered into, agreed to or
consummated by the Company, then the Company shall pay Buyer a termination
fee of $6,000,000, in same-day funds, on the earlier of the date an
agreement is entered into in respect of an Acquisition Proposal or an
Acquisition Proposal is consummated.

(c) The Company acknowledges that the agreements contained in Section
8.5(b) are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty, and that,
without these agreements, Buyer and Subsidiary would not have entered into
this Agreement. If the Company fails to promptly pay the amount due
pursuant to Section 8.5(b), and, in order to obtain such payment, Buyer
commences a suit which results in a judgment against the Company for the
fee set forth in this Section 8.5, the Company shall pay to Buyer its costs
and expenses (including attorneys' fees) in connection with such suit,
together with interest from the date of termination of this Agreement on
the amounts owed at the prime rate of Bank of America, N.A., in effect from
time to time during such period plus two percent.

8.6 Amendment. This Agreement may be amended by action taken by the
Company, Buyer and Subsidiary at any time before or after Shareholder Approval,
but after any such approval, no amendment shall be made which changes the amount
or form of the Merger Consideration. This Agreement may not be amended except by
an instrument in writing signed on behalf of the parties hereto.

8.7 Extension; Waiver. At any time prior to the Effective Time, each party
hereto (for these purposes, Buyer and Subsidiary shall together be deemed one
party and the Company shall be deemed the other party) may (i) extend the time
for the performance of any of the obligations or other acts of the
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other party, (ii) waive any inaccuracies in the representations and warranties
of the other party contained herein or in any document, certificate or writing
delivered pursuant hereto, or (iii) waive compliance by the other party with any
of the agreements or conditions contained herein. Any agreement on the part of
either party hereto 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 of
any party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.

ARTICLE 9

MISCELLANEOUS

9.1 Confidentiality. Pending Closing, the agreement executed by the
Parties on July 26, 1999, concerning confidentiality shall remain in full force
and effect.

9.2 Notices. All Notices under this Agreement shall be in writing and sent
by certified or registered mail, overnight messenger service, telecopier or
personal delivery, as follows:

(a) if to the Company, to:

Power Trends, Inc.
27715 Diehl Road
Warrenville, Illinois 60555
Attention: Mr. G. Russell Ashdown
President and Chief Executive Officer
Telecopier: (630) 393-6778

with a copy to:

Johnson and Colmar
300 South Wacker Drive
Suite 1000
Chicago, Illinois 60606
Attention: Michael Bonn
Telecopier: (312) 922-9283

(b) if to Buyer and Subsidiary, to:

Texas Instruments Incorporated
7839 Churchill Way, M/S 3995
Dallas, Texas 75251
-- or --
P.O. Box 650311, M/S 3995
Dallas, Texas 75265
Attention: Charles D. Tobin
Telecopier: (972) 917-3804

with copies to:

Texas Instruments Incorporated
8505 Forest Lane, M/S 8658
Dallas, Texas 75243
-- or --
P.O. Box 660199, M/S 8658
Dallas, Texas 75266
Attention: Richard J. Agnich
Telecopier: (972) 480-5061

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and

Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: R. Scott Cohen
Telecopier: (214) 746-7777

Mr. William N. Sick, Jr.
565 North Sheridan Road
Winnetka, Illinois 60093
Telecopier: (847) 501-5108

with a copy to:

Johnson and Colmar
300 South Wacker Drive
Suite 1000
Chicago, Illinois 60606
Attention: Michael Bonn
Telecopier: (312) 922-9283

All Notices sent by certified or registered mail shall be considered to
have been given three business days after being deposited in the mail. All
Notices sent by overnight courier service, telecopier or personal delivery
shall be considered to have been given when actually received by the
intended recipient. A Party or the Shareholder Representatives may change
its or their address for purposes of this Agreement by Notice in accordance
with this Section 9.2.

9.3 Further Assurances. Each Party agrees (i) to furnish upon request to
the other Party such further information, (ii) to execute and deliver to the
other Party such other documents and (iii) to do such other acts and things, as
the other Party reasonably requests for the purpose of carrying out the intent
of this Agreement and the documents and instruments referred to in this
Agreement.

9.4 Entire Agreement. This Agreement supersedes all prior agreements
between the Parties with respect to its subject matter and constitutes (together
with the Disclosure Schedule and the Parties' Closing Documents) a complete and
exclusive statement of the terms of the agreement between the Parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement signed by the Party to be charged with the amendment.

9.5 Assignment. No Party may assign any of its rights under this Agreement
without the prior written consent of the other Party or Parties.

9.6 No Third Party Beneficiaries. Nothing in this Agreement shall be
considered to give any Person other than the Parties any legal or equitable
right, claim or remedy under or in respect of this Agreement or any provision of
this Agreement. This Agreement and all of its provisions are for the sole and
exclusive benefit of the Parties and their respective successors and permitted
assigns.

9.7 Severability. If any provision of this Agreement is held invalid or
unenforceable by a court of competent jurisdiction, the other provisions of this
Agreement shall remain in full force and effect. Any provision of this Agreement
which is held invalid or unenforceable only in part shall remain in full force
and effect to the extent not held invalid or unenforceable.

9.8 Captions. The captions of articles and sections of this Agreement are
for convenience only and shall not affect this the construction or
interpretation of this Agreement.

9.9 Construction. All references in this Agreement to "Section" or
"Sections" refer to the corresponding section or sections of this Agreement. All
words used in this Agreement shall be construed

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to be of the appropriate gender or number as the context requires. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.

9.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered an original copy of this
Agreement and all of which, when taken together, shall be considered to
constitute one and the same agreement.

9.11 Governing Law. This Agreement shall be governed by the Laws of the
State of Illinois without regard to conflicts of laws principles.

9.12 Binding Effect. This Agreement shall apply to, be binding in all
respects upon and inure to the benefit of Parties and their respective
successors and permitted assigns.

In witness, the Parties have executed this Agreement.

POWER TRENDS, INC.

By: /s/ WILLIAM N. SICK, JR.
----------------------------------
Name: William N. Sick, Jr.
Title: Chairman of the Board

TEXAS INSTRUMENTS INCORPORATED

By: /s/ DELBERT A. WHITAKER
----------------------------------
Name: Delbert A. Whitaker
Title: Senior Vice President

POWER ACQUISITION CORP.

By: /s/ DELBERT A. WHITAKER
----------------------------------
Name: Delbert A. Whitaker
Title: President

This Agreement is countersigned by the undersigned Depositary Agent as of the
date first above written to acknowledge and agree to the provisions of Article 7
that pertain to the Depositary Agent.

HARRIS TRUST AND SAVINGS BANK,
as Depositary Agent

By: /s/ D.G. DONOVAN
--------------------------------
Name: D.G. Donovan
Title: Assistant Vice President

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ANNEX I

DEFINITIONS

Accounts Receivable means accounts receivable, trade receivables, notes
receivable and other receivables of the Business.

Acquisition Proposal is defined in Section 5.9(a).

Affiliate means, in respect of any Person, any other Person that directly
or indirectly through one or more intermediaries controls, is controlled by or
is under common control with the first Person. As used in this definition,
"control" means the direct or indirect possession of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise. Unless the context
otherwise requires, any reference to an "Affiliate" is a reference to an
Affiliate of the Company.

APB 16 means Accounting Principles Bulletin No. 16.

Articles of Incorporation means the Company's articles of incorporation, as
amended to date.

Articles of Merger is defined in Section 2.3(a).

Assumed Stock Option is defined in Section 2.5(n).

Authorized Officer means a corporate officer of a corporation who is duly
authorized to perform the specified action.

Average Buyer Stock Price is defined in Section 2.4(c).

Books and Records means books, records, ledgers, files, documents,
correspondence, lists, reports, creative materials, advertising and promotional
materials and other printed or written materials.

Business means the Company's business of manufacturing and selling
integrated switching regulators and DC-to-DC converters with a focus on on-board
modular power solutions.

Buyer means Texas Instruments Incorporated, a Delaware corporation with its
principal executive offices located at 8505 Forest Lane, Dallas, Texas 75243.

Buyer Common Stock is defined in the Background Section B.

Buyer Legal Opinion is defined in Section 2.3(c)(3).

Buyer SEC Reports is defined in Section 4.7.

Buyer Termination Notice is defined in Section 8.4(b).

Certificates is defined in Section 2.5(b).

Cleanup Liability means any Liability under any Environmental Law for
corrective action, including any investigation, cleanup, removal, containment or
other remedial or response action or activity of the type covered by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980.

Closing is defined in Section 2.2.

Closing Date means the date that Closing occurs.

Closing Documents means, in respect of a Party, the documents, instruments
and agreements that it is required to deliver or enter into at Closing pursuant
to the terms of this Agreement.

Common Stock means the Company's common stock, no par value per share.

Company means Power Trends, Inc., an Illinois corporation with its
principal executive offices located at 27715 Diehl Road, Warrenville, Illinois
60555, and, with respect to the representations and warranties contained in
Article 3, shall include the Foreign Sales Corporation.

A-39
<PAGE> 190

Company Affiliate Agreement is defined in Section 5.13.

Company Legal Opinion is defined in Section 2.3(b)(3).

Company Option Plans is defined in Section 2.5(n).

Company Shareholder Meeting is defined in Section 5.4.

Company Stock Option is defined in Section 2.5(n).

Company Termination Notice is defined in Section 8.3(b).

Consent means any approval, consent, ratification, waiver or other
authorization (including any Permit).

Contract means any legally binding contract, agreement, obligation, promise
or undertaking (whether written or oral, and whether express or implied).

Corporate Governance Agreement means (i) the 1989 Purchase Agreement, 1990
Purchase Agreement, 1991 Purchase Agreement, 1993 Purchase Agreement or 1994
Purchase Agreement (as those terms are defined in Part 12 of Article Four of the
Company's Articles of Incorporation), (ii) the Registration Agreement or Put
Agreement (as those terms are similarly defined), (iii) any restricted stock
agreement pursuant to which the Company has issued and sold any shares of
Preferred or Common Stock, or (iv) any other Contract to which the Company and
one or more Shareholders are parties which restricts the transfer of any shares
of Preferred or Common Stock, grants any Person a right of first refusal to
purchase any shares of Preferred or Common Stock, or regulates the voting of any
shares of Preferred or Common Stock.

Default means, in respect of a Contract, a breach or violation of or
default under the Contract, or the occurrence of an event which with notice or
the passage of time (or both) would constitute a breach, violation or default or
permit termination, modification or acceleration of the Contract.

Defect is defined in Section 3.31(b).

Depositary Agent is defined in Section 7.2(a).

Disclosure Schedule means the disclosure schedule that the Company has
delivered to Buyer concurrently with the execution of this Agreement by the
Parties.

Dissenting Shares is defined in Section 2.5(m).

Dissenting Shareholders is defined in Section 2.5(m).

DOJ is defined in Section 5.6(b).

Effective Time is defined in Section 2.4(a).

Employee Benefit Plan means (i) an "employee pension plan" as defined in
sec. 3(2) of ERISA, (ii) an "employee welfare benefit plan" as defined in
sec. 3(1) of ERISA or (iii) any other employee benefit or fringe benefit plan or
program, whether established by Law, a written agreement or other instrument, or
custom or informal understanding.

Environmental Laws means, in respect of a Facility or other Real Property,
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
and Resource Conservation and Recovery Act of 1976, and all other applicable
Laws and Orders relating to or imposing Liability or standards of conduct for
the use, handling, generation, manufacturing, distribution, processing,
collection, transportation, transfer, storage, treatment, disposal, cleanup, or
Release of Hazardous Materials.

Environmental Liability means any Cleanup Liability or any other Liability
under any Environmental Law or Occupational Safety and Health Law, including any
Liability arising from a Release of Hazardous Materials at, on, in or under any
Facility or other Real Property.

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<PAGE> 191

Equipment means machinery, equipment, spare parts, furniture, fixtures and
other items of tangible personal property of any type or kind used, held for use
or useful in the conduct of the Business (but not including Inventories or
Leasehold Improvements).

Equipment Lease means a Contract for the lease of Equipment or for the
purchase of Equipment under a conditional sales or title retention agreement.

ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and the related regulations issued by the Internal Revenue Service and
Department of Labor.

Escrow Amount is defined in Section 7.2(a).

Escrow Fund is defined in Section 7.2(a).

Escrow Period is defined in Section 7.2(c).

Exchange Act means the Securities Exchange Act of 1934, as amended, and the
related rules and regulations issued by the SEC thereunder.

Exchange Agent is defined in Section 2.5(a).

Exchange Fund is defined in Section 2.5(a).

Exchange Ratio is defined in Section 2.4(c).

Expiration Date is defined in Section 7.1.

Facility means any office, manufacturing facility, warehouse or other
location or site that the Company currently owns, leases, operates, occupies or
uses, or that it formerly owned, leased, operated, occupied or used, in the
conduct of the Business.

Facility Lease means a lease of or other right to operate, occupy or use a
Facility that the Company or any of its subsidiaries or Affiliates currently
leases, operates, occupies or uses in connection with the conduct of the
Business.

Financial Statements means the Company's audited financial statements,
together with the notes thereto, for the years ended June 30, 1999, 1998 and
1997.

Foreign Sales Corporation means Power Trends Foreign Sales Corporation, a
corporation organized under the laws of Barbados.

Former Facility Lease means a lease of or other right to operate, occupy or
use a Facility that the Company or any of its current or former subsidiaries or
Affiliates or predecessors-in-interest formerly leased, operated, occupied or
used in connection with the conduct of the Business or prior operations.

FTC is defined in Section 5.6(b).

GAAP means United States generally accepted accounting principles, applied
on a consistent basis.

Governmental Authority means (i) any federal, state, provincial, local,
municipal, foreign or other government and (ii) any governmental or
quasi-governmental body of any kind (including any administrative or regulatory
agency, department, branch, commission or other entity).

Hazardous Activity means the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment or use of Hazardous Materials.

Hazardous Materials means any waste or other substance of any kind that is
or was listed, defined, designated or classified under any Law or Order as
hazardous, radioactive or toxic or as a pollutant or contaminant.

HSR means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

Illinois Business Corporation Act means the Illinois Business Corporation
Act of 1983, as amended.
A-41
<PAGE> 192

Internal Revenue Code means the U.S. Internal Revenue Code of 1986, as
amended.

June 30 Balance Sheet means the Company's balance sheet as of June 30, 1999
included in the Financial Statements.

Knowledge means, in respect of the Company or Buyer, the actual awareness
by an officer of the Company or Buyer, as the case may be, of a particular fact
or other specified matter.

Law means any law, ordinance, code, regulation, rule, guideline or policy
of any Governmental Authority or any principle or rule of common law.

Leasehold Improvements means depreciable or amortizable improvements made
by (or on behalf of) the tenant under a Facility Lease which belong to the
tenant and not to the landlord.

Liability means any liability or obligation, whether known or unknown,
absolute or contingent, liquidated or unliquidated, or due or to become due.

Lien means any lien, security interest, claim, community property interest,
equitable interest, option, pledge, right of first refusal or other encumbrance
or restriction of any kind, including any restriction on use, voting, transfer,
receipt of income or exercise of any other attribute of ownership.

Losses is defined in Section 7.2(b).

Marks means trade marks, service marks, trade names, assumed names, brand
names and logotypes (including translations, adaptations, derivations and
combinations) and related applications, registrations and renewals.

Material Adverse Effect means a material adverse effect on the business,
operations, financial position or assets of the Company taken as a whole.

Maximum Average Buyer Stock Price is defined in Section 2.4(c)(2).

Maximum Price Proviso is defined in Section 8.4(b).

Merger is defined in Section 2.1.

Merger Consideration is defined in Section 2.4(c).

Minimum Average Buyer Stock Price is defined in Section 2.4(c).

Minimum Price Proviso is defined in Section 8.3(b).

New Shares is defined in Section 7.2(d).

Notice means any notice, demand, charge, complaint or other communication
from any Person.

Notices is defined in Section 3.31(a).

NYSE is defined in Section 2.4(c).

Occupational Safety and Health Laws means the Occupational Safety and
Health Act of 1970, as amended, and all other applicable Laws and Orders
intended to provide safe and healthful working conditions and to reduce
occupational safety and health hazards.

Officer's Certificate means a certificate signed by an Authorized Officer
whose responsibilities extend to the subject matter of the certificate.

Option means an option to purchase shares of Common Stock granted under the
Company's Long-Term Incentive Plan.

Order means any order, judgment, decree, ruling, consent decree, settlement
agreement, stipulation, injunction or subpoena entered or issued by any court,
Governmental Authority or arbitrator.

Ordinary Course of Business means, in respect of the Company, an action
taken by it which (i) is consistent with its past practices and is taken in the
ordinary course of the normal day-to-day operations
A-42
<PAGE> 193

and (ii) is not required by applicable Law or its Organizational Documents to be
authorized by its board of directors.

Organizational Documents means the certificate or articles of incorporation
and by-laws of a corporation, each as amended to date.

Party means both Buyer and Subsidiary (or either one of them, as the
context requires) or the Company, and Parties means all of them.

Patents means patents, patent applications and patent disclosures and
related reissuances, continuations, continuations-in-part, revisions, extensions
and reexaminations.

Permit means any approval, consent, license, permit, registration,
certificate, waiver, confirmation or other authorization issued, granted or
otherwise made available by any Governmental Authority.

Person means any individual, corporation, general or limited partnership,
limited liability company, joint venture, association, organization, estate,
trust or other entity or any Governmental Authority.

Plan of Merger is defined in Section 2.3(a).

Preferred Stock means the Company's preferred stock.

Product is defined in Section 3.31(b).

Proprietary Information means trade secrets and proprietary or confidential
business information, including: (i) ideas, formulas, discoveries and inventions
(whether patentable or unpatentable, and whether or not reduced to practice),
(ii) know-how, and (iii) computer source codes, programs, software and
documentation (other than those that are commercially available).

Proxy Statement is defined in Section 3.33.

Real Property means land or an interest in land (other than an interest in
a Facility Lease).

Recalls is defined in Section 3.31(a).

Reduction Notice is defined in Section 8.4(b).

Related Party means, in respect of the Company, (i) any Affiliate of the
Company or (ii) any Person for which any officer or director of the Company is
serving as an officer, director, partner, manager, executor, trustee or in a
similar capacity or in which any officer or director of the Company has an
equity, beneficial or other financial interest.

Release means a spill, leak, emission, discharge, deposit, dumping or other
release into the environment, whether intentional or unintentional.

Representatives is defined in Section 7.1.

S-4 is defined in Section 3.33.

SEC means the Securities and Exchange Commission.

Securities Act means the Securities Act of 1933, as amended, and the
related rules and regulations issued by the SEC thereunder.

Schedule means a schedule contained in the Disclosure Schedule (including a
subschedule of any such schedule).

Shareholder means a Person who is the owner of record of one or more Shares
as of Closing.

Shareholder Approval means the adoption of this Agreement and approval of
the Merger by the affirmative approval of the holders of (i) Common Stock
representing two-thirds of the votes that may be cast by the holders of all
outstanding Common Stock (voting as a single class) and (ii) a majority of the
outstanding Preferred Stock (voting as a single class), in each case as of the
record date set for such action.
A-43
<PAGE> 194

Shareholder Representatives means William N. Sick, Jr., James E. Forrest,
and Lloyd D. Ruth.

Shares means shares of Preferred Stock or Common Stock, or both.

Subsidiary means Power Acquisition Corp., an Illinois corporation and
wholly owned subsidiary of Buyer.

Suit means any action, suit, proceeding, arbitration, audit, hearing or
investigation (whether civil, criminal, administrative or investigative in
nature, and whether formal or informal) by, before or in any court, Governmental
Authority or arbitrator.

Surviving Corporation is defined in Section 2.1.

Systems is defined in Section 3.30(f).

Takeover Statutes is defined in Section 3.32.

Tax means any federal, state, provincial, local, municipal or foreign tax,
charge, fee, levy, or similar assessment or liability, including without
limitation, income, franchise, gross receipts, capital stock, profits,
withholding, social security, unemployment, real property, personal property,
stamp, excise, occupation, sales, use, transfer, value added, estimated or other
tax (including any related interest, fines, penalties and additions), whether
disputed or not, and any transferee liability in respect of Taxes, any liability
in respect of Taxes imposed by contract, Tax sharing agreement, Tax
reimbursement agreement, or any similar agreement.

Tax Return means any return (including any information return), report,
statement, form or other document required to be filed with or submitted to any
Governmental Authority in connection with the determination, assessment,
collection or payment of any Tax.

Termination Date is defined in Section 8.2(a).

Third Party Claim is defined in Section 7.4.

Threatened means, in respect of a Suit, that Notice has been given, or an
other event has occurred or any other circumstance exists, that would lead a
prudent individual to conclude that the Suit is likely to be initiated or
otherwise pursued in the future.

Top-Up Notice is defined in Section 8.3(b).

Voting Agreement is defined in the Background Section D.

Warrant is defined in Section 2.5(o).

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<PAGE> 195

EXHIBITS TO MERGER AGREEMENT

Exhibit A -- Voting Agreement -- Attached hereto as Annex B

Exhibits B-1, B-2, B-3, B-4, B-5 and B-6 -- Forms of Employment
Agreements -- Not Included

Exhibit C -- Amended and Restated Articles of Incorporation of Power
Trends, Inc. -- Attached hereto as Annex D

Exhibit D -- Form of Company Affiliate Letter to Buyer -- Not Included

A-45
<PAGE> 196

ANNEX B

VOTING AGREEMENT

In consideration of Texas Instruments Incorporated, a Delaware corporation
("Buyer"), Power Acquisition Corp., an Illinois corporation ("Subsidiary"), and
Power Trends, Inc., an Illinois corporation (the "Company"), entering into on
the date hereof a Merger Agreement, dated as of the date hereof (the "Merger
Agreement"), pursuant to which Subsidiary, upon the terms and subject to the
conditions thereof, will merge with and into the Company (the "Merger"), and
each outstanding share of Common Stock and Preferred Stock (as such terms are
defined in the Merger Agreement) (collectively, the "Company Capital Stock")
will be converted into the right to receive the Merger Consideration (as defined
in the Merger Agreement) in accordance with the terms of the Merger Agreement,
each of the undersigned holders (each, a "Shareholder") of shares of Company
Capital Stock agrees with each of Buyer, Subsidiary and the Company as follows:

1. During the period (the "Agreement Period") beginning on the date hereof
and ending on the earlier of (i) the Effective Time (as defined in the Merger
Agreement), (ii) 90 days after the termination of the Merger Agreement in
accordance with Section 8.4(a), if the termination resulted from a breach of a
covenant or agreement by the Company, or Section 8.4(c), and (iii) the date of
the termination of the Merger Agreement for any other reason, each Shareholder
hereby agrees to vote the shares of Company Capital Stock set forth opposite its
name in SCHEDULE A hereto (the "Schedule A Securities") to approve and adopt the
Merger Agreement and the Merger (provided that the Shareholder shall not be
required to vote in favor of the Merger Agreement or the Merger if the Merger
Agreement has, without the consent of the Shareholder, been amended in any
manner that is material and adverse to such Shareholder) and any actions
directly and reasonably related thereto at any meeting or meetings of the
shareholders of the Company, and at any adjournment thereof or pursuant to
action by written consent, at or by which such Merger Agreement, or such other
actions, are submitted for the consideration and vote of the shareholders of the
Company so long as such meeting is held (including any adjournment thereof) or
written consent adopted prior to the termination of the Agreement Period.

2. During the Agreement Period, each Shareholder hereby agrees that such
Shareholder shall not enter into any voting agreement or grant a proxy or power
of attorney with respect to the Schedule A Securities in any manner inconsistent
with the obligations of such Shareholder under this Agreement or take any other
action that is inconsistent with the obligations of such Shareholder under this
Agreement, including any action that would prevent, or materially delay the
consummation of, the transactions contemplated by the Merger Agreement.

3. During the Agreement Period, each Shareholder will not, directly or
indirectly, (i) take any action to solicit, initiate or encourage any
Acquisition Proposal (as defined in the Merger Agreement) or (ii) engage in
negotiations or discussions with, or disclose any nonpublic information relating
to the Company or any of its subsidiaries or afford access to the properties,
books or records of the Company or any of its subsidiaries to, or otherwise
assist, facilitate or encourage, any person that the Shareholder reasonably
believes may be considering making, or has made, an Acquisition Proposal.

4. Prior to the record date set for the Company Shareholder Meeting (as
defined in the Merger Agreement), each of Marquette Venture Partners, L.P. and
Wind Point Partners, L.P. agree to convert a sufficient number of shares of
Preferred Stock owned by them into Common Stock so as to assure the requisite
approvals of the Merger by the holders of the Common Stock and Preferred Stock,
respectively.

5. Each Shareholder hereby represents and warrants to Buyer and Subsidiary
that as of the date hereof:

(a) Such Shareholder (i) owns beneficially all of the shares of
Company Capital Stock set forth opposite the Shareholder's name in SCHEDULE
A hereto, (ii) has the full and unrestricted legal power, authority and
right to enter into, execute and deliver this Voting Agreement without the
consent or approval of any other person, and (iii) has not entered into any
voting agreement or other similar

B-1
<PAGE> 197

agreement with or granted any person any proxy (revocable or irrevocable)
in respect of such shares (other than this Voting Agreement).

(b) This Voting Agreement is the valid and binding agreement of such
Shareholder.

(c) No investment banker, broker or finder is entitled to a commission
or fee from such Shareholder or the Company in respect of this Voting
Agreement based upon any arrangement or agreement made by or on behalf of
the Shareholder.

6. If any provision of this Voting Agreement shall be invalid or
unenforceable under applicable law, such provision shall be ineffective to the
extent of such invalidity or unenforceability only, without in any way affecting
the remaining provisions of this Voting Agreement.

7. This Voting Agreement may be executed in two or more counterparts each
of which shall be an original with the same effect as if the signatures hereto
and thereto were upon the same instrument.

8. The parties hereto agree that if, for any reason, any party hereto shall
have failed to perform its obligations under this Voting Agreement, then the
party seeking to enforce this Voting Agreement against such non-performing party
shall be entitled to specific performance and injunctive and other equitable
relief, and the parties hereto further agree to waive any requirement for the
securing or posting of any bond in connection with the obtaining of any such
injunctive relief. This provision is without prejudice to any other rights or
remedies, whether at law or in equity, that any party hereto may have against
any other party hereto for any failure to perform its obligations under this
Voting Agreement.

9. This Voting Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois.

10. Each Shareholder will, upon request, execute and deliver any additional
documents deemed by Buyer to be reasonably necessary or desirable to complete
and effectuate the covenants contained herein.

11. This Agreement shall terminate upon the termination of the Agreement
Period.

12. No Shareholder shall sell, assign, encumber or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding in respect
of the direct or indirect sale, assignment, transfer, encumbrance or other
disposition of, any Schedule A Securities during the term of this Agreement
unless such Shareholder first provides written notice thereof to Buyer and
obtains a written agreement of the proposed transferee to be bound by the terms
of this Agreement.

13. Each Shareholder agrees not to exercise any rights (including, without
limitation, under Section 5/11.70 of the Illinois Business Corporation Act) to
demand appraisal of any Schedule A Securities which may arise in respect of the
Merger.

14. Buyer, Subsidiary and the Company understand and agree that this
Agreement pertains only to each Shareholder and not to any of its affiliates, if
any, or advisers.

15. Buyer, Subsidiary and the Company severally, but not jointly, represent
and warrant to each Shareholder that there is no agreement, understanding or
commitment, written or oral, to pay any consideration directly or indirectly in
connection with the Merger or otherwise to or for the benefit of any holder of
Company Capital Stock or options thereon other than as set forth in the Merger
Agreement (except, in the case of directors, employees, agents, customers,
suppliers or contractors of the Company who are also holders, such consideration
as is payable by the Company in the ordinary course of business, and except for
amounts payable to officers, directors or employees in connection with or
pursuant to any options or option, stock purchase, stock ownership or other
employee benefit plans).

16. Neither Buyer, Subsidiary nor the Company will enter into any agreement
with any other shareholder of the Company having a purpose or effect
substantially similar to that of this Voting Agreement on financial terms (in
respect of such other stockholder) more favorable than the terms of this Voting
Agreement.

B-2
<PAGE> 198

17. Any Shareholder who is also a director of the Company will not, by
execution of this Agreement, be precluded from exercising his fiduciary duties
under applicable Law in his capacity as a director with respect to the Company.

18. Nothing contained in this Voting Agreement shall be deemed to vest in
Buyer, Subsidiary or the Company any direct or indirect ownership or incidence
of ownership of or with respect to any Schedule A Securities. All rights,
ownership and economic benefits of and relating to the Schedule A Securities
shall remain and belong to the applicable Shareholder and neither Buyer,
Subsidiary nor the Company shall have any power or authority to direct any
Shareholder in the voting of any Schedule A Securities or the performance by any
Shareholder of its duties or responsibilities as a shareholder of the Company,
except as otherwise provided herein.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

B-3
<PAGE> 199

IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of September 29, 1999.

TEXAS INSTRUMENTS INCORPORATED

By: /s/ DELBERT A. WHITAKER
----------------------------------
Name: Delbert A. Whitaker
Title: Senior Vice President

POWER ACQUISITION CORP.

By: /s/ DELBERT A. WHITAKER
----------------------------------
Name: Delbert A. Whitaker
Title: President

POWER TRENDS, INC.

By: /s/ WILLIAM N. SICK, JR.
----------------------------------
Name: William N. Sick, Jr.
Title: Chairman of the Board

MARQUETTE VENTURE PARTNERS, L.P.

By: Marquette Venture Associates,
L.P.,
its General Partner

By: Marquette Management Partners,
its General Partner
By: /s/ LLOYD D. RUTH
---------------------------------
Name: Lloyd D. Ruth
Title: General Partner

WIND POINT PARTNERS, L.P.

By: /s/ JAMES E. FORREST
----------------------------------
Name: James E. Forrest
Title: General Partner

/s/ WILLIAM N. SICK, JR.
------------------------------------
William N. Sick, Jr.

B-4
<PAGE> 200

BUSINESS RESOURCES INTERNATIONAL,
INC.

By: /s/ WILLIAM N. SICK, JR.
----------------------------------
Name: William N. Sick, Jr.
Title: President

JILL MELANIE SICK 1991 TRUST

By: /s/ WILLIAM N. SICK, JR.
----------------------------------
Name: William N. Sick, Jr.
Title: Trustee

DAVID LOUIS SICK 1991 TRUST

By: /s/ WILLIAM N. SICK, JR.
----------------------------------
Name: William N. Sick, Jr.
Title: Trustee

LOUIS PITCHLYN WILLIAMS 1992 TRUST

By: /s/ WILLIAM N. SICK, JR.
----------------------------------
Name: William N. Sick, Jr.
Title: Trustee

STEPHANIE ANN SICK 1991 TRUST

By: /s/ WILLIAM N. SICK, JR.
----------------------------------
Name: William N. Sick, Jr.
Title: Trustee

/s/ G. RUSSELL ASHDOWN
------------------------------------
G. Russell Ashdown

B-5
<PAGE> 201

SCHEDULE A
TO
VOTING AGREEMENT

<TABLE>
<CAPTION>
SHAREHOLDER CLASS NUMBER OF SHARES
- ----------- ----- ----------------
<S> <C> <C>
Marquette Venture Partners, L.P..................... A-1 Convertible Preferred 17,000
A-2 Convertible Preferred 9,710
A-3 Convertible Preferred 6,250
A-4 Convertible Preferred 29,443
B-1 Convertible Preferred 7,172
Wind Point Partners, L.P............................ A-4 Convertible Preferred 29,082
B-1 Convertible Preferred 3,543
William N. Sick, Jr. ............................... B-1 Convertible Preferred 1,685
Common 500,000
Business Resources International.................... B-1 Convertible Preferred 715
Jill Melanie Sick 1991 Trust........................ Common 48,000
David Louis Sick 1991 Trust......................... Common 48,000
Louis Pitchlyn Williams 1992 Trust.................. Common 24,000
Stephanie Ann Sick 1991 Trust....................... A-4 Convertible Preferred 900
G. Russell Ashdown.................................. A-4 Convertible Preferred 400
Common 701,518
</TABLE>

B-6
<PAGE> 202

ANNEX C

SECTIONS 11.65 AND 11.70
ILLINOIS BUSINESS CORPORATION ACT

SECTION 11.65. RIGHT TO DISSENT

sec. 11.65. Right to dissent. (a) A shareholder of a corporation is
entitled to dissent from, and obtain payment for his or her shares in the event
of any of the following corporate actions:

(1) consummation of a plan of merger or consolidation or a plan of
share exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 or the articles of incorporation or (ii) the
corporation is a subsidiary that is merged with its parent or another
subsidiary under Section 11.30;

(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;

(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:

(i) alters or abolishes a preferential right of such shares;

(ii) alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of such shares;

(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to such
shares; or

(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or
resolution.

(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.

(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other shares
were recorded in the names of different shareholders. A beneficial owner of
shares who is not the record owner may assert dissenters' rights as to shares
held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights.

SECTION 11.70. PROCEDURE TO DISSENT

sec. 11.70. Procedure to Dissent. (a) If the corporate action giving rise
to the right to dissent is to be approved at a meeting of shareholders, the
notice of meeting shall inform the shareholders of their right to dissent and
the procedure to dissent. If, prior to the meeting, the corporation furnishes to
the shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her shares if the
proposed action is consummated, and the shareholder does not vote in favor of
the proposed action.

C-1
<PAGE> 203

(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.

(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that 10 day
period.

(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon consummation
of that action, the corporation shall pay to each dissenter who transmits to the
corporation the certificate or other evidence of ownership of the shares the
amount the corporation estimates to be the fair value of the shares, plus
accrued interest, accompanied by a written explanation of how the interest was
calculated.

(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).

(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.

(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive

C-2
<PAGE> 204

evidence and recommend decision on the question of fair value. The appraisers
have the power described in the order appointing them, or in any amendment to
it.

(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.

(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:

(1) Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).

(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.

If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure.

(j) As used in this Section:

(1) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the consummation of the corporate
action to which the dissenter objects excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusion
would be inequitable.

(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.

C-3
<PAGE> 205

ANNEX D

AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
POWER TRENDS, INC.

ARTICLE 1: The name of the corporation is Power Trends, Inc.

ARTICLE 2: The registered office of the corporation in the State of
Illinois is located at 208 S. LaSalle Street, Chicago, Cook County, Illinois
60604. The name of the registered agent of the corporation at such address is
C T Corporation System.

ARTICLE 3: The purpose for which the corporation is organized is the
transaction of any and all lawful businesses for which corporations may be
incorporated under the Illinois Business Corporation Act, as amended.

ARTICLE 4: The total number of shares which the corporation shall have
authority to issue is 10,000 shares, par value $.01 per share, designated Common
Stock.

ARTICLE 5: The number of directors constituting the current board of
directors is three. The names and addresses of the persons who are currently
serving as directors, until the next annual meeting of shareholders or until
their successors are elected and qualify are:

<TABLE>
<S> <C>
Delbert A. Whitaker 6426 Forest Creek
Dallas, TX 75230

M. Samuel Self 5127 Quail Lake Drive
Dallas, TX 75287

Bart T. Thomas 7301 Edgewood Drive
Dallas, TX 75025
</TABLE>

D-1
<PAGE> 206

PART II

INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The General Corporation Law of the State of Delaware, at Section 145,
provides, in pertinent part, that a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as the
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful. In
addition, the indemnification of expenses, including attorneys' fees, is allowed
in derivative actions, except no indemnification is allowed in respect to any
claim, issue or matter as to which any such person has been adjudged to be
liable to the corporation, unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought decides that
indemnification is proper. To the extent that any such person succeeds on the
merits or otherwise, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith. The determination that the person to be indemnified met the
applicable standard of conduct, if not made by a court, is made by the directors
of the corporation by a majority vote of the directors not party to such an
action, suit or proceeding even though less than a quorum, by a committee of
such directors designated by majority vote of such directors even though less
than a quorum, or, if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion or by the
stockholders. Expenses may be paid in advance upon the receipt, in the case of
officers and directors, of undertakings to repay such amount if it shall
ultimately be determined that the person is not entitled to be indemnified by
the corporation as authorized in this section. A corporation may purchase
indemnity insurance.

The above described indemnification and advancement of expenses, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and inure to the benefit of
such person's heirs, executors and administrators. Article VI, Section 2 of the
Texas Instruments' Bylaws provides that Texas Instruments shall indemnify its
officers and directors for such expenses, judgments, fines and amounts paid in
settlement to the full extent permitted by the laws of the State of Delaware.
Section 102(b)(7) of the General Corporation Law of the State of Delaware, as
amended, permits a corporation to provide in its certificate of incorporation
that a director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Article Seventh of Texas Instruments' Restated
Certificate of Incorporation contains such a provision.

Under insurance policies of Texas Instruments, directors and officers of
Texas Instruments may be indemnified against certain losses arising from certain
claims, including claims under the Securities Act of 1933, which may be made
against such persons by reason of their being such directors or officers.

II-1
<PAGE> 207

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

EXHIBIT LIST

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
2 -- Agreement and Plan of Merger, dated as of September 29,
1999, by and among Texas Instruments, Power Trends and
Power Acquisition Corp.+
3(a) -- Restated Certificate of Incorporation of Texas
Instruments.(1)
3(b) -- Certificate of Amendment to Restated Certificate of
Incorporation of Texas Instruments.(1)
3(c) -- Certificate of Amendment to Restated Certificate of
Incorporation of Texas Instruments.(1)
3(d) -- Certificate of Amendment to Restated Certificate of
Incorporation of Texas Instruments.(2)
3(e) -- Certificate of Ownership and Merger Merging Texas
Instruments Automation Controls, Inc. into Texas
Instruments.(1)
3(f) -- Certificate of Elimination of Designations of Preferred
Stock of Texas Instruments.(1)
3(g) -- Certificate of Ownership and Merger Merging Tiburon
Systems, Inc. into Texas Instruments.(3)
3(h) -- Certificate of Ownership and Merger Merging Tartan, Inc.
into Texas Instruments.(3)
3(i) -- Certificate of Designation relating to Texas Instruments'
Participating Cumulative Preferred Stock.(4)
3(j) -- Certificate of Elimination of Designation of Preferred
Stock of Texas Instruments.(5)
3(k) -- Bylaws of Texas Instruments.(6)
4(a)(i) -- Rights Agreement, dated as of June 18, 1998, between
Texas Instruments and Harris Trust and Savings Bank as
Rights Agent, which includes as Exhibit B the form of
Rights Certificate.(7)
4(a)(ii) -- Amendment, dated as of September 18, 1998, to the Rights
Agreement.(9)
4(b) -- Texas Instruments agrees to provide the Commission, upon
request, copies of instruments defining the rights of
holders of long-term debt of Texas Instruments and its
subsidiaries.
5 -- Opinion of Weil, Gotshal & Manges LLP.+
8(a) -- Opinion of Weil, Gotshal & Manges LLP regarding certain
tax matters.+
8(b) -- Opinion of Johnson and Colmar regarding certain tax
matters.+
10(a)(i) -- Texas Instruments' Deferred Compensation Plan.(9)
10(a)(ii) -- Amendment No. 1 to Texas Instruments' Deferred
Compensation Plan.(9)
10(a)(iii) -- Amendment No. 2 to Texas Instruments' Deferred
Compensation Plan.(10)
10(a)(iv) -- Amendment No. 3 to Texas Instruments' Deferred
Compensation Plan.(11)
10(b) -- Texas Instruments' Long-term Incentive Plan.(11)
10(c) -- Texas Instruments' 1996 Long-term Incentive Plan.(12)
10(d) -- Texas Instruments' Executive Officer Performance
Plan.(12)
10(e) -- Texas Instruments' Restricted Stock Unit Plan for
Directors.(13)
10(f) -- Texas Instruments' Directors Deferred Compensation
Plan.(13)
</TABLE>

II-2
<PAGE> 208

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10(g) -- Texas Instruments' Stock Option Plan for Non-Employee
Directors.(15)
10(h) -- Agreement and Plan of Merger, dated as of May 29, 1999,
by and among Texas Instruments, Telogy Networks, Inc. and
TNI Acquisition Corp. (exhibits and schedules
omitted).(14)
10(i) -- Asset Purchase Agreement dated as of January 4, 1997
between Texas Instruments and Raytheon Company (exhibits
and schedules omitted).(15)
10(j) -- Acquisition Agreement dated as of June 18, 1998 between
Texas Instruments and Micron Technology, Inc. (exhibit C
omitted).(16)
10(k) -- Second Amendment to Acquisition Agreement dated as of
September 30, 1998 between Texas Instruments and Micron
Technology, Inc.(17)
10(l) -- Securities Rights and Restrictions Agreement dated as of
September 30, 1998 between Texas Instruments and Micron
Technology, Inc.(5)
10(m) -- Agreement and Plan of Merger, dated as of July 25, 1999,
by and among Texas Instruments, Unitrode, Inc. and
Unicorn Acquisition Corp.+
11 -- Statement Regarding Computation of Per Share Earnings.+
21 -- Subsidiaries of Texas Instruments.+
23(a) -- Consent of Ernst & Young LLP.*
23(b) -- Consent of Arthur Andersen LLP.*
23(c) -- Consent of Weil, Gotshal & Manges LLP (included in
exhibits 5 and 8(a)).
23(d) -- Consent of Johnson and Colmar (included in exhibit 8(b)).
24 -- Powers of Attorney (included on the signature pages to
this registration statement).
99(a) -- Power Trends Form of Proxy.*
</TABLE>

- ---------------

* Filed herewith.

+ Previously filed.

(1) Incorporated by reference to the Exhibits filed with Texas Instruments'
Annual Report on Form 10-K for 1993.

(2) Incorporated by reference to the Exhibits filed with Texas Instruments'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.

(3) Incorporated by reference to the Exhibits filed with Texas Instruments'
Registration Statement No. 333-41919 on Form S-8 filed December 10, 1997.

(4) Incorporated by reference to the Exhibits filed with Texas Instruments'
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.

(5) Incorporated by reference to the Exhibits filed with Texas Instruments'
Annual Report on Form 10-K for 1998.

(6) Incorporated by reference to the Exhibits filed with Texas Instruments'
Current Report on Form 8-K dated December 4, 1997.

(7) Incorporated by reference to the Exhibits filed with Texas Instruments'
Registration Statement on Form 8-A dated June 23, 1998.

(8) Incorporated by reference to the Exhibit filed with Texas Instruments'
Amendment No. 1 to Form 8-A, dated September 23, 1998.

(9) Incorporated by reference to the Exhibits filed with Texas Instruments'
Annual Report on Form 10-K for 1994.

II-3
<PAGE> 209

(10) Incorporated by reference to the Exhibits filed with Texas Instruments'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

(11) Incorporated by reference to the Exhibits filed with Texas Instruments'
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.

(12) Incorporated by reference to the Exhibits filed with Texas Instruments'
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.

(13) Incorporated by reference to the Exhibits filed with Texas Instruments'
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.

(14) Incorporated by reference to the Exhibits filed with Texas Instruments'
Registration Statement No. 333-80157 on Form S-4 filed June 8, 1999.

(15) Incorporated by reference to the Exhibits filed with Texas Instruments'
Current Report on Form 8-K dated January 4, 1997.

(16) Incorporated by reference to the Exhibits filed with Texas Instruments'
Current Report on Form 8-K dated June 18, 1998.

(17) Incorporated by reference to the Exhibits filed with Texas Instruments'
Current Report on Form 8-K dated October 15, 1998.

FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II. Allowance for Losses and Cash-Related Special
Charges of Texas Instruments. .............................. S-1
Schedule II. Accounts Receivable Allowances of Power
Trends. .................................................. S-2
</TABLE>

All other schedules have been omitted because the required information is
either not present or not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the financial
statements or the notes thereto.

ITEM 22. UNDERTAKINGS.

(a) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.

(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expense incurred or paid by a director, officer
or

II-4
<PAGE> 210

controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.

(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-5
<PAGE> 211

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in Dallas, Texas, on the 2nd day of November, 1999.

TEXAS INSTRUMENTS INCORPORATED

By: /s/ WILLIAM A. AYLESWORTH
----------------------------------
William A. Aylesworth
Senior Vice President,
Treasurer and
Chief Financial Officer

POWER OF ATTORNEY

The registrant and each person whose signature appears below constitutes
and appoints each of Thomas J. Engibous, Richard J. Agnich, William A.
Aylesworth and M. Samuel Self, or any of them, each acting alone, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign and file (i) a registration statement, and any and all
amendments, thereto, relating to the offering covered hereby filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and (ii) any and all
amendments (including post-effective amendments) to this registration statement,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
* Director November 2, 1999
- -----------------------------------------------------
James R. Adams

* Director November 2, 1999
- -----------------------------------------------------
David L. Boren

* Director November 2, 1999
- -----------------------------------------------------
James B. Busey IV

* Director November 2, 1999
- -----------------------------------------------------
Daniel A. Carp

* Chairman of the Board; November 2, 1999
- ----------------------------------------------------- President; Chief Executive
Thomas J. Engibous Officer; Director

* Director November 2, 1999
- -----------------------------------------------------
Gerald W. Fronterhouse
</TABLE>

II-6
<PAGE> 212

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
* Director November 2, 1999
- -----------------------------------------------------
David R. Goode

* Director November 2, 1999
- -----------------------------------------------------
Wayne R. Sanders

* Director November 2, 1999
- -----------------------------------------------------
Ruth J. Simmons

* Director November 2, 1999
- -----------------------------------------------------
Clayton K. Yeutter

/s/ WILLIAM A. AYLESWORTH Senior Vice President; November 2, 1999
- ----------------------------------------------------- Treasurer; Chief Financial
William A. Aylesworth Officer

* Senior Vice President; November 2, 1999
- ----------------------------------------------------- Controller; Chief Accounting
M. Samuel Self Officer

*/s/ WILLIAM A. AYLESWORTH November 2, 1999
- -----------------------------------------------------
William A. Aylesworth
Attorney-in-Fact
</TABLE>

II-7
<PAGE> 213

SCHEDULE II

TEXAS INSTRUMENTS

ALLOWANCE FOR LOSSES AND CASH-RELATED SPECIAL CHARGES
(IN MILLIONS OF DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997, 1996

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED BALANCE
BEGINNING TO COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES USAGE ADJUSTMENTS OF YEAR
----------- ---------- ----------------- ----- ----------- -------
<S> <C> <C> <C> <C> <C>
Allowance for losses:
1998..................................... $ 73 $101 $ (77) -- $ 97
1997..................................... $ 90 $133 $(150) -- $ 73
1996..................................... $ 45 $163 $(118) -- $ 90
Note: Allowance for losses from uncollectible accounts, returns, etc., are deducted from accounts
receivable in the balance sheet.
Cash-related special charges:
1998..................................... $148 $255 $(228) $(20) $155
1997..................................... $116 $152 $(116) $ (4) $148
1996..................................... $ 15 $145 $ (41) $ (3) $116
Notes: Adjustments are to reflect changes in estimated costs and are either reversals to income or
increases in expense.
</TABLE>

Cash-related activity for special charges is included in the above
schedule. See analysis in the Restructuring Actions note to the financial
statements for non-cash, as well as cash-related, activities for special
charges.

S-1
<PAGE> 214

SCHEDULE II

ACCOUNTS RECEIVABLE ALLOWANCES FOR POWER TRENDS
(IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year................................ $35 $35 $45
Provision for doubtful accounts............................. 0 10 36
Provision for discounts, allowances and rebates............. -- -- --
Write-offs for doubtful accounts, net of recoveries......... 0 0 0
Discounts, allowances and rebates taken..................... -- -- --
--- --- ---
Balance at end of year...................................... $35 $45 $81
=== === ===
</TABLE>

S-2
<PAGE> 215

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2 -- Agreement and Plan of Merger, dated as of September 29,
1999, by and among Texas Instruments, Power Trends and
Power Acquisition Corp.+
3(a) -- Restated Certificate of Incorporation of Texas
Instruments.(1)
3(b) -- Certificate of Amendment to Restated Certificate of
Incorporation of Texas Instruments.(1)
3(c) -- Certificate of Amendment to Restated Certificate of
Incorporation of Texas Instruments.(1)
3(d) -- Certificate of Amendment to Restated Certificate of
Incorporation of Texas Instruments.(2)
3(e) -- Certificate of Ownership and Merger Merging Texas
Instruments Automation Controls, Inc. into Texas
Instruments.(1)
3(f) -- Certificate of Elimination of Designations of Preferred
Stock of Texas Instruments.(1)
3(g) -- Certificate of Ownership and Merger Merging Tiburon
Systems, Inc. into Texas Instruments.(3)
3(h) -- Certificate of Ownership and Merger Merging Tartan, Inc.
into Texas Instruments.(3)
3(i) -- Certificate of Designation relating to Texas Instruments'
Participating Cumulative Preferred Stock.(4)
3(j) -- Certificate of Elimination of Designation of Preferred
Stock of Texas Instruments.(5)
3(k) -- Bylaws of Texas Instruments.(6)
4(a)(i) -- Rights Agreement, dated as of June 18, 1998, between
Texas Instruments and Harris Trust and Savings Bank as
Rights Agent, which includes as Exhibit B the form of
Rights Certificate.(7)
4(a)(ii) -- Amendment, dated as of September 18, 1998, to the Rights
Agreement.(9)
4(b) -- Texas Instruments agrees to provide the Commission, upon
request, copies of instruments defining the rights of
holders of long-term debt of Texas Instruments and its
subsidiaries.
5 -- Opinion of Weil, Gotshal & Manges LLP.+
8(a) -- Opinion of Weil, Gotshal & Manges LLP regarding certain
tax matters.+
8(b) -- Opinion of Johnson and Colmar regarding certain tax
matters.+
10(a)(i) -- Texas Instruments' Deferred Compensation Plan.(9)
10(a)(ii) -- Amendment No. 1 to Texas Instruments' Deferred
Compensation Plan.(9)
10(a)(iii) -- Amendment No. 2 to Texas Instruments' Deferred
Compensation Plan.(10)
10(a)(iv) -- Amendment No. 3 to Texas Instruments' Deferred
Compensation Plan.(11)
10(b) -- Texas Instruments' Long-term Incentive Plan.(11)
10(c) -- Texas Instruments' 1996 Long-term Incentive Plan.(12)
10(d) -- Texas Instruments' Executive Officer Performance
Plan.(12)
10(e) -- Texas Instruments' Restricted Stock Unit Plan for
Directors.(13)
10(f) -- Texas Instruments' Directors Deferred Compensation
Plan.(13)
10(g) -- Texas Instruments' Stock Option Plan for Non-Employee
Directors.(15)
</TABLE>

<PAGE> 216

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10(h) -- Agreement and Plan of Merger, dated as of May 29, 1999,
by and among Texas Instruments, Telogy Networks, Inc. and
TNI Acquisition Corp. (exhibits and schedules
omitted).(14)
10(i) -- Asset Purchase Agreement dated as of January 4, 1997
between Texas Instruments and Raytheon Company (exhibits
and schedules omitted).(15)
10(j) -- Acquisition Agreement dated as of June 18, 1998 between
Texas Instruments and Micron Technology, Inc. (exhibit C
omitted).(16)
10(k) -- Second Amendment to Acquisition Agreement dated as of
September 30, 1998 between Texas Instruments and Micron
Technology, Inc.(17)
10(l) -- Securities Rights and Restrictions Agreement dated as of
September 30, 1998 between Texas Instruments and Micron
Technology, Inc.(5)
10(m) -- Agreement and Plan of Merger, dated as of July 25, 1999,
by and among Texas Instruments, Unitrode, Inc. and
Unicorn Acquisition Corp.+
11 -- Statement Regarding Computation of Per Share Earnings.+
21 -- Subsidiaries of Texas Instruments.+
23(a) -- Consent of Ernst & Young LLP.*
23(b) -- Consent of Arthur Andersen LLP.*
23(c) -- Consent of Weil, Gotshal & Manges LLP (included in
exhibits 5 and 8(a)).
23(d) -- Consent of Johnson and Colmar (included in exhibit 8(b)).
24 -- Powers of Attorney (included on the signature pages to
this registration statement).
99(a) -- Power Trends Form of Proxy*
</TABLE>