SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 28, 1997 or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________.
Commission file number: 0-15627
SEQUENT COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0826369
(State or other jurisdiction (I.R.S. Employer
of organization or incorporation) Identification Number)
15450 S.W. Koll Parkway
Beaverton, Oregon 97006-6063
(Address of principal executive offices, including zip code)
(503) 626-5700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
35,373,935 common shares were issued and outstanding as of July 22, 1997.
SEQUENT COMPUTER SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 28, 1997 and
December 28, 1996 3
Consolidated Statements of Operations - Three months
and six months ended June 28, 1997 and June 29, 1996 4
Consolidated Statements of Shareholders' Equity -
December 30, 1995 through June 28, 1997 5
Consolidated Statements of Cash Flows - Six months
ended June 28, 1997 and June 29, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
(a) Exhibit 10.13 - Form of Underwriting Agreement. 15 - 35
Exhibit 11 - Statement regarding computation of
earnings per share. 36
(b) No reports on Form 8-K were filed by the Company
during the fiscal quarter ended June 28, 1997.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Unaudited
(in thousands, except per share amounts)
June 28, 1997 Dec. 28, 1996
ASSETS
Current assets:
Cash and cash equivalents $ 54,688 $ 37,979
Restricted deposits 46,349 44,655
Receivables, net 237,239 209,752
Inventories 82,262 74,491
Prepaid royalties and other 33,741 30,577
Total current assets 454,279 397,454
Property and equipment, net 139,162 133,838
Capitalized software costs, net 63,232 59,567
Other assets, net 20,189 21,150
Total assets $ 676,862 $ 612,009
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 78,889 $ 59,925
Accounts payable and other 96,408 88,119
Accrued payroll 23,115 24,853
Unearned revenue 51,388 30,787
Income taxes payable 3,225 3,017
Current obligations under capital
leases and debt 8,953 7,325
Total current liabilities 261,978 214,026
Other accrued expenses 8,858 6,671
Long-term obligations under capital
leases and debt 13,711 16,503
Total liabilities 284,547 237,200
Shareholders' equity:
Common stock, $.01 par value,
35,133 and 34,188 shares outstanding 351 342
Paid-in capital 326,309 315,316
Retained earnings 70,020 60,715
Foreign currency translation adjustment (4,365) (1,564)
Total shareholders' equity 392,315 374,809
Total liabilities and shareholders'
equity $ 676,862 $ 612,009
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
Revenue:
Product $ 154,422 $ 99,549 $ 259,989 $ 180,658
Service 56,231 43,038 108,038 82,674
Total revenue 210,653 142,587 368,027 263,332
Costs and expenses:
Cost of products sold 78,590 47,494 129,045 86,147
Cost of service revenue 42,198 33,890 80,997 64,501
Research and development 16,476 12,265 31,918 24,527
Selling, general and administrative 59,583 44,422 109,833 82,667
Total costs and expenses 196,847 138,071 351,793 257,842
Operating income 13,806 4,516 16,234 5,490
Interest, net (786) 214 (2,036) 427
Other, net (432) (201) (574) (564)
Income before provision for income taxes 12,588 4,529 13,624 5,353
Provision for income taxes 3,991 1,223 4,319 1,449
Net income $ 8,597 $ 3,306 $ 9,305 $ 3,904
Net income per share $ 0.23 $ 0.10 $ 0.25 $ 0.12
Weighted average number of common
and common equivalent shares
outstanding 36,830 34,165 36,736 33,891
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - Unaudited
(In thousands)
Foreign
currency
Common Stock Paid-in Retained translation
Shares Amount capital earnings adjustment Total
Balance, December 30, 1995 33,221 $332 $304,343 $52,945 $ (4,432) $353,188
Common shares issued 967 10 9,622 - - 9,632
Tax benefit of option exercises - - 175 - - 175
Warrants issued - - 1,176 - - 1,176
Net income - - - 7,771 - 7,771
Foreign currency translation
adjustment - - - - 2,868 2,868
Rounding - - - (1) - (1)
Balance, December 28, 1996 34,188 342 315,316 60,715 (1,564) 374,809
Common shares issued 652 6 6,879 - - 6,885
Tax benefit of option exercises - - 263 - - 263
Net income - - - 708 - 708
Foreign currency translation
adjustment - - - - (3,070) (3,070)
Balance, March 29, 1997 34,840 348 322,458 61,423 (4,634) 379,595
Common shares issued 293 3 3,763 - - 3,766
Tax benefit of option exercises - - 88 - - 88
Net income - - - 8,597 - 8,597
Foreign currency translation
adjustment - - - - 269 269
Balance, June 28, 1997 35,133 $351 $326,309 $70,020 $ (4,365) $392,315
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
(in thousands)
Six Months Ended
June 28, 1997 June 29, 1996
Cash flow from operating activities:
Net income $ 9,305 $ 3,904
Reconciliation of net income to net cash
provided by operating activities -
Depreciation and amortization 40,342 30,108
Changes in assets and liabilities -
Receivables, net (27,487) 43,047
Inventories (7,771) (13,762)
Prepaid royalties and other (3,164) (11,840)
Accounts payable and other 8,289 (323)
Accrued payroll (1,738) 4,866
Unearned revenue 20,601 5,202
Income taxes payable 208 277
Other accrued expenses 2,187 4,277
Other, net (3) (21)
Net cash provided by operating activities 40,769 65,735
Cash flow from investing activities:
Restricted deposits (1,694) 11,408
Purchases of property and equipment, net (32,114) (36,309)
Capitalized software costs (16,762) (16,178)
Intangibles and other assets 509 (13,479)
Foreign currency translation adjustment (2,801) (1,197)
Net cash used for investing activities (52,862) (55,755)
Cash flow from financing activities:
Notes payable, net 18,964 (12,912)
Proceeds (payments) under capital lease obligations (1,164) 216
Stock issuance proceeds, net 11,002 3,066
Net cash provided (used) by financing activities 28,802 (9,630)
Net increase in cash and cash equivalents 16,709 350
Cash and cash equivalents at beginning of period 37,979 61,939
Cash and cash equivalents at end of period $ 54,688 $ 62,289
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 28, 1997
Basis of Presentation
The accompanying consolidated financial statements are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and in the opinion of management include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of the results for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
annual report and Form 10-K for the fiscal year ended December 28, 1996.
The Company's fiscal year is based on a 52-53 week year ending the Saturday
closest to December 31. The accompanying consolidated financial statements
include the accounts of Sequent Computer Systems, Inc. and its wholly-owned
subsidiaries (the Company or Sequent). All significant intercompany accounts
and transactions have been eliminated. The results for interim periods are
not necessarily indicative of the results for the entire year.
Reclassifications
Reclassifications have been made to amounts in certain prior years. These
changes had no impact on previously reported results of operations.
Recently Issued Accounting Standard
In March 1997, the FASB issued Statement of Financial Accounting Standards No.
128, Earnings Per Share (SFAS 128). SFAS 128 applies to entities with
publicly held common stock and is effective for financial statements issued
for periods ending after December 15, 1997. SFAS 128 replaces APB Opinion 15,
Earnings Per Share, and simplifies the computation of EPS by replacing the
presentation of primary EPS with a presentation of basic EPS. The impact of
the SFAS 128 EPS calculation for the second quarter of 1997 is not material.
See Exhibit 11 for the computation of average shares outstanding and earnings
per share.
Accounts Receivable
At June 28, 1997, accounts receivable in the accompanying consolidated balance
sheet is net of $20 million received by the Company under its agreement to
sell its domestic accounts receivable.
Inventories
Inventories consist of the following:
(in thousands)
June 28, Dec. 28,
1997 1996
Raw materials $ 16,971 $ 14,205
Work-in-progress 2,823 2,166
Finished goods 62,468 58,120
$ 82,262 $ 74,491
Property and Equipment
Property and equipment consist of the following:
(in thousands)
June 28, Dec. 28,
1997 1996
Land $ 5,037 $ 5,037
Operational equipment 196,142 174,662
Furniture and office equipment 93,554 89,951
Leasehold improvements 24,630 22,584
319,363 292,234
Less accum. depr. & amort. (180,201) (158,396)
$ 139,162 $ 133,838
Research and Development
Amortization of capitalized software costs, generally based on a three-year
life, was $13.1 million and $9.6 million for the six months ended June 28,
1997 and June 29, 1996, respectively.
Notes Payable
The Company has an unsecured line of credit agreement with a group of banks
which provides short-term borrowings of up to $80 million. The line of credit
agreement extends through May 29, 1998. At June 28, 1997, $30.8 million was
outstanding under this line of credit agreement. There were no borrowings
outstanding under the line of credit at June 29, 1996. The interest rate on
this borrowing at June 28, 1997 was 7.2%.
The Company has a short-term borrowing agreement with a foreign bank as a
hedge to cover certain foreign currency exposures. Borrowings under the
agreement are denominated in various foreign currencies. Proceeds from the
borrowings are converted into U.S. dollars and placed in a term deposit
account with the foreign bank. At June 28, 1997, maximum borrowings allowed
under the agreement were approximately $54.2 million. The maximum borrowing
limit is denominated in specified foreign currencies and fluctuates with the
change in foreign exchange rates. Amounts outstanding were $46.3 million and
$28.2 million at June 28, 1997 and June 29, 1996, respectively.
In addition to the above borrowing agreements, the Company has entered into
certain other miscellaneous borrowing arrangements with a foreign bank. At
June 28, 1997, $1.7 million was outstanding. There were no borrowings
outstanding under these borrowing arrangements at June 29, 1996.
During the third quarter of 1996, a U.S. subsidiary of the Company entered
into a financing arrangement with third parties for $2.2 million, of which $1
million is with a related party. The financing consisted of short-term
convertible notes with an interest rate of 10%. During the second quarter of
1997, the notes were converted into preferred stock of the subsidiary.
Obligations under Capital Leases and Long-Term Debt
In April 1992, the Company issued $20 million of 7.5% Convertible Subordinated
Debentures ("Convertible Debentures" or "Debentures") due March 31, 2000. In
conjunction with the Company's equity offering in 1993, $9.9 million of the
Debentures were converted into 626,000 shares of common stock and are no
longer classified as long-term debt. The Convertible Debentures are
convertible into the Company's common stock at the option of the holders at an
initial conversion price of $15.81 per share. Under this provision, in August
1995, an additional $1.0 million of the Debentures were converted into 63,000
shares of common stock, further reducing long-term debt. Under the agreement,
the Company is required to make quarterly principal payments of $1.7 million
beginning June 30, 1997, unless waived by the noteholders, through 1998 to
retire the outstanding Debentures. The first principal payment due June 30,
1997 has been waived by all noteholders. Notwithstanding any other potential
waivers, a principal payment of $1.7 million is due on September 30, 1997.
The balance outstanding on the Debentures was $9.1 million at both June 28,
1997 and June 29, 1996. At June 28, 1997, $6.7 million is classified as
current obligations. As of April of 1997, the Convertible Debentures are
callable at the option of the Company. The Debentures contain certain
financial covenants, including restrictions on additional debt, minimum net
worth levels and a prohibition on the payment of dividends.
Income Taxes
The Company's general practice is to reinvest the earnings of its foreign
subsidiaries operations, unless it would be advantageous to the Company to
repatriate the foreign subsidiaries' retained earnings. The effective tax
rate differs from the statutory tax rate principally due to the benefit from
the Company's foreign sales corporation.
Significant Customers
The Company operates primarily in one business segment which includes the
design, manufacture and marketing of high-performance computer systems and
operating environment software. Project-oriented offerings include a
comprehensive portfolio of customer, professional and education services to
solve complex Information Technology problems. Approximately 25% of the
Company's revenues in the second quarter of 1997 were from one customer.
Geographic Segment Information
Export and foreign revenue was $97.9 million (47% of total revenue) for the
three months ended June 28, 1997 and $177.6 million (48% of total revenue) for
the first six months of 1997. Export and foreign revenue was $66.4 million
and $130.4 million (46% and 49% of total revenue, respectively) for the
corresponding periods in 1996. The Company's United States operations
generated operating income of $20.4 million for the three months ended June
28, 1997 and $21.7 million for the first six months of 1997. Foreign
operations generated net operating losses of $6.6 million for the quarter
ended June 28, 1997, compared to net operating losses of $6.9 million for the
first six months of 1997. Comparable periods in 1996 included"break-even"
results and net operating losses of $0.3 million for the three months ended
June 29, 1996 and first six months of 1996 respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 28, 1997
OVERVIEW
Total revenue was $210.7 million and $368.0 million for the second quarter and
first six months of 1997, respectively. Total revenue for the same periods in
1996 was $142.6 million and $263.3 million. Net income was $8.6 million and
$9.3 million for the second quarter and first six months of 1997,
respectively, compared to $3.3 million and $3.9 million for the same periods
in 1996. Total revenue increases of 48% and 40% for the second quarter and
first six months of 1997 over the same periods in 1996 included product
revenue increases of 55% and 44%. Product revenue increases were the result
of substantial growth in sales of the Company's NUMA-Q products in 1997, as
well as continued increases in major account project sales to new and existing
customers.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
revenue:
Three months ended Six months ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
Revenue:
End-user products 73.3 68.9% 69.5% 66.2%
OEM products - 1.0 1.1 2.4
Service 26.7% 30.1 29.4 31.4
Total revenue 100.0 100.0 100.0 100.0
Cost of products and service 57.3 57.1 57.1 57.2
Gross profit 42.7 42.9 42.9 42.8
Operating expenses:
Research and development 7.8 8.6 8.7 9.3
Selling, general and administrative 28.3 31.2 29.8 31.4
Total operating expenses 36.1 39.8 38.5 40.7
Operating income 6.6 3.1 4.4 2.1
Interest income (expense), net (0.4) 0.2 (0.5) 0.2
Other (expense), net (0.2) (0.1) (0.2) (0.2)
Income before provision
for income taxes 6.0 3.2 3.7 2.1
Provision for income taxes 1.9 0.9 1.2 0.6
Net income 4.1% 2.3% 2.5% 1.5%
REVENUE
Strong growth in the Company's total revenue included substantial increases in
product and service revenue. Product revenue increased 55% in the second
quarter of 1997 over the second quarter of 1996, primarily resulting from
strong sales of NUMA-Q products in 1997. The NUMA-Q product line, formally
introduced into the marketplace in the first quarter of 1997, represented
approximately 67% of product revenue during the second quarter of 1997. The
Company's strong growth in product sales that included service contracts
contributed to significant increases in total service revenue. Service
revenue increased approximately 31% in the second quarter and first six months
of 1997 over the same periods in 1996. As a percentage of total revenue,
however, service revenue decreased, which was mainly the result of the
substantial increases in product revenue. Also contributing to the Company's
overall revenue growth in 1997 over 1996 were sales from its foreign
operations, particularly from the European subsidiaries. The Company's
international operations increased 47% in the second quarter of 1997 over the
second quarter of 1996, with the majority of the increase coming from
operations in the United Kingdom. As expected, OEM revenue has continued to
decline as a percentage of total revenue as the Company has focused its
investment into its direct sales organization and indirect channels other than
OEM partners.
COST OF SALES
The factors influencing gross margins in a given period generally include unit
volumes (which affect economies of scale), product configuration mix, changes
in component and manufacturing costs, product pricing and the mix between
product and service revenue. The Company's overall product gross margins were
approximately 49% and 52% for the three month and six month periods ended June
28, 1997 and June 29, 1996, respectively. These decreases in product margins
were mainly due to a significant increase in third party product sales during
the second quarter of 1997 which yield lower gross margins than standard
Sequent products. The percentage of sales from the Company's higher margin
NUMA-Q products continued to increase during the second quarter of 1997, as
well as in the first six months of 1997. The Company's overall gross margins
were affected by lower margin sales of the Company's Symmetry products, which,
as expected, are continuing to represent a lower percentage of the Company's
overall sales.
RESEARCH AND DEVELOPMENT
During the first half of 1997, research and development expenses increased in
total as the Company continues to invest heavily in enhancements to its NUMA-
Q product technology. Total research and development expenses increased 34%
and 30% in the second quarter and first six months of 1997 over the same
periods in 1996. As a percentage of revenue, however, these expenses have
decreased slightly due to the Company's significant revenue growth in 1997
compared to 1996. Research and development costs capitalized were
approximately $16.8 million and $16.2 million in the first six months of 1997
and 1996, respectively, but decreased slightly in the second quarter of 1997
over the same period in 1996, mainly as a result of a major software release
in the second quarter of 1997. For the remainder of 1997 the Company plans to
continue making significant investments related to enhancements in its NUMA-Q
product line and development of a product offering featuring the Windows NT
operating system.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 34% and 33% in the
second quarter and first six months of 1997, respectively, over the same
periods in 1996. These increases were primarily due to costs associated with
the Company's sales organization, mainly from commissions on increased
revenues in 1997 and from other expenses resulting from the substantial
increase in headcount during 1996. However, as a percentage of revenue, these
expenses have decreased for the same periods in 1997 compared to 1996. In
the second quarter and first six months of 1997, selling, general and
administrative expenses were 28% and 30% of total revenue, respectively. In
1996, selling, general and administrative expenses were 31% for both the
second quarter and first six months.
INTEREST AND OTHER, NET
Interest income is primarily generated from restricted deposits held at
foreign and domestic banks, short-term investments and cash and cash
equivalents. Interest expense includes costs related to convertible
debentures, foreign currency hedging loans, interim short-term borrowing and
capital lease obligations. Interest income for the second quarter and first
six months of 1997 was $0.8 million and $1.5 million respectively, and $0.7
million and $1.6 million for the same periods in 1996. Interest expense for
the same periods in 1997 and 1996 was $1.6 million and $3.5 million and $0.5
million and $1.2 million, respectively. The Company's use of funds for its
continued investment in its NUMA-Q product line, expansion of the sales
channel and related increase in short-term borrowings were factors in the
increase in interest expense in 1997 over 1996.
Other expense consists primarily of net realized and unrealized foreign
exchange gains and losses and discount on sale of receivables.
INCOME TAXES
The provision for income taxes includes benefits related to the Company's
foreign sales corporation and the utilization of available domestic and
foreign tax attributes carried forward from prior years. The effective tax
rate for the second quarter and first six months of 1997 was 32%, compared to
27% for the corresponding periods in 1996 and the overall annual effective tax
rate for 1996. The increase in the rate is due mainly to limited tax
attribute carryforwards available in fiscal year 1997 and the dilution of
permanent tax benefits such as the foreign sales corporation due to
differences in pre-tax earnings year over year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $192.3 million at June 28, 1997 compared to $183.4 million
at December 28, 1996. The Company's current ratio at June 28, 1997 and
December 28, 1996 was 1.7:1 and 1.9:1, respectively.
Net cash provided by operations during the six months ended June 28, 1997
totaled $40.8 million and cash and cash equivalents increased by $16.7
million. The Company continued to make significant investments in property
and equipment ($32.1 million), inventories ($7.8 million) and capitalized
software ($16.8 million), primarily related to product and software
development associated with its new NUMA-Q product line. Sources of funds
primarily included net proceeds from notes payable ($19.0 million) and
issuances of stock ($11.0 million).
The Company has a $20 million receivable sales facility with a group of banks.
At June 28, 1997 accounts receivable in the accompanying consolidated balance
sheet is net of $20 million received by the Company under this agreement to
sell its domestic accounts receivable.
The Company maintains an $80 million revolving line of credit agreement. The
line is unsecured and extends through May 29, 1998. The line contains certain
financial covenants and prohibits the Company from paying dividends without
the lenders' consent. At June 28, 1997, $30.8 million was outstanding under
the line of credit.
The Company maintains a short-term borrowing agreement with a foreign bank to
cover foreign currency exposures. Maximum borrowings allowed under the
foreign bank agreement were $54.2 million, of which $46.3 million was
outstanding at June 28, 1997 (based on currency exchange rates on such date).
The Company also maintains a miscellaneous borrowing arrangement with a
foreign bank. At June 28, 1997, $1.7 million was outstanding under this
agreement.
On July 14, 1997, the Company filed a registration statement with the
Securities and Exchange Commission covering the offer and sale of 5,250,000
shares (excluding over-allotment options) of Common Stock to the public
(approximately 4,200,000 shares by the Company and 1,050,000 shares by selling
shareholders). Management expects that current funds, funds from operations
and the bank lines of credit along with anticipated net proceeds from the sale
of Common Stock will provide adequate resources to meet the Company's
anticipated operational cash requirements for at least the next twelve months.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEQUENT COMPUTER SYSTEMS, INC.
/S/ Robert S. Gregg
By Robert S. Gregg
Sr. Vice President of Finance and Legal and
Chief Financial Officer
Date: July 24, 1997
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
10.13 Form of Underwriting Agreement 15 - 35
11 Statement regarding computation
of earnings per share 36
FORM OF UNDERWRITER AGREEMENT EXHIBIT 10.13
5,250,000 Shares
SEQUENT COMPUTER SYSTEMS, INC.
COMMON STOCK, $0.01 PAR VALUE
UNDERWRITING AGREEMENT
______________, 1997
_______________, 1997
Morgan Stanley & Co. Incorporated
Cowen & Company
SoundView Financial Group, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Cowen & Company
SoundView Financial Group, Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Sequent Computer Systems, Inc., an Oregon corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below), and
certain stockholders of the Company (the "Selling Stockholders") named in
Schedule III hereto, severally propose to sell to the several Underwriters, an
aggregate of 5,250,000 shares of the Company's Common Stock, $0.01 per share
par value (the "Firm Shares"), of which 4,199,439 shares are to be issued and
sold by the Company and 1,050,561 shares are to be sold by the Selling
Stockholders, each Selling Stockholder selling the amount set forth opposite
such Selling Stockholder's name in Schedule III hereto. The Company and the
Selling Stockholders are hereinafter sometimes collectively referred to as the
"Sellers."
It is understood that, subject to the conditions hereinafter stated,
4,200,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several
U.S. Underwriters named in Schedule I hereto (the "U.S. Underwriters") in
connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and 1,050,000 Firm Shares (the "International Shares") will be
sold to the several International Underwriters named in Schedule II hereto
(the "International Underwriters") in connection with the offering and sale of
such International Shares outside the United States and Canada to persons
other than United States and Canadian Persons. Morgan Stanley & Co.
Incorporated and Cowen & Company and SoundView Financial Group, Inc. shall act
as representatives (the "U.S. Representatives") of the several U.S.
Underwriters, and Morgan Stanley & Co. International Limited and Cowen &
Company and SoundView Financial Group, Inc. shall act as representatives (the
"International Representatives") of the several International Underwriters.
The U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 787,500 shares of the Company's
Common Stock, $0.01 per share par value (the "Additional Shares") if and to
the extent that the U.S. Representatives shall have determined to exercise, on
behalf of the U.S. Underwriters, the right to purchase such shares of common
stock granted to the U.S. Underwriters in Section 2 hereof. The Firm Shares
and the Additional Shares are hereinafter collectively referred to as the
"Shares." The shares of Common Stock, $0.01 per share par value, of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The
registration statement contains two prospectuses to be used in connection with
the offering and sale of the Shares: the U.S. prospectus, to be used in
connection with the offering and sale of Shares in the United States and
Canada to United States and Canadian Persons, and the international
prospectus, to be used in connection with the offering and sale of Shares
outside the United States and Canada to persons other than United States and
Canadian Persons. The international prospectus is identical to the U.S.
prospectus except for the outside front cover page. The registration
statement as amended at the time it becomes effective, including the
information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act of 1933,
as amended (the "Securities Act"), is hereinafter referred to as the
"Registration Statement"; the U.S. prospectus and the international prospectus
in the respective forms first used to confirm sales of Shares are hereinafter
collectively referred to as the "Prospectus" (including, in the case of all
references to the Registration Statement and the Prospectus, the documents
incorporated by reference therein). If the Company has filed an abbreviated
registration statement to register additional shares of Common Stock pursuant
to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters and the
Selling Stockholders that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in effect;
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Company has filed in a timely manner each document
or report required to be filed by it pursuant to the Securities Exchange Act
of 1934 (the "Exchange Act") and the rules and regulations thereunder within
the twelve (12) month period preceding the date hereof, and will file in a
timely manner each such document or report required to be filed by it, (ii)
each such document complied or will comply when so filed in all material
respects with the Exchange Act and the applicable rules and regulations
thereunder, (iii) each part of the Registration Statement, when such part
became effective, did not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) the Registration Statement and the
Prospectus comply and, as amended or supplemented, if applicable, will comply
in all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph 1(b) do not apply to statements or omissions in
the Registration Statement or the Prospectus based upon information relating
to any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and non-assessable and
are owned directly by the Company, free and clear of all liens, encumbrances,
equities or claims, except that the Company owns only 80% of the issued shares
of capital stock of DP Applications, Inc., an Oregon corporation ("DP
Applications").
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the articles of incorporation or
by-laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to
the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act, complied when
so filed in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(p) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to require
the Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to include
such securities with the Shares registered pursuant to the Registration
Statement, except such as have either been complied with by the Company or
waived by the holder of such right or that are not applicable with respect to
this offering.
(q) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(r) The financial statements of the Company and its
subsidiaries, together with related schedules and notes set forth in the
Registration Statement and the Prospectus, fairly present the financial
condition of the Company and its subsidiaries as of the dates indicated and
the results of operation and changes in financial position for the periods
therein specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
disclosed therein) and except as disclosed in the Prospectus, the other
financial information and financial and statistical data set forth in the
Prospectus are fairly presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(s) Each of the Company and its subsidiaries owns or possesses
all patents, patent rights, trademarks, trade names, service marks, service
names, copyrights, license rights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) and other intellectual property rights necessary to
carry on its business in all material respects as presently conducted and,
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which in the aggregate, if the subject of any unfavorable
decision, ruling or finding, would result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(t) The Company and its subsidiaries have filed all tax
returns required to be filed and are not in default in the payment of any
taxes which were payable pursuant to said returns or any assessments with
respect thereto, other than any which the Company or any such subsidiary is
contesting in good faith and other than where any such failures or defaults
taken in the aggregate, would not have a material adverse effect on the
condition, financial or otherwise, or in the earnings, business or operations
of the Company and its subsidiaries, taken as a whole.
(u) The accountants who have certified or shall certify the
financial statements filed or to be filed with the Commission as parts of the
Registration Statement and the Prospectus are independent public accountants
as required by the Securities Act.
(v) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prospectus or other materials, if any permitted by the Securities Act.
(w) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) material
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to material assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for material
assets is compared with existing material assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(x) Neither the Company nor any of its subsidiaries nor any
employee or agent of the Company or any of its subsidiaries has made any
payment of funds of the Company or any subsidiary or received or retained any
funds in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the
Prospectus.
(y) No material labor dispute with the employees of the
Company or any of its subsidiaries exists or, to the knowledge of the Company,
is imminent; and the Company is not aware of any existing, threatened or
imminent labor disturbance by the employees of any of its principal suppliers,
manufactures or contractors that could result in any material adverse change
in the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(z) Each of the Company and its subsidiaries is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the business in which it
is engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at
a cost that would not materially and adversely affect the condition, financial
or otherwise, or the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.
2. Representations and Warranties of the Selling Stockholders. Each
of the Selling Stockholders, severally and not jointly, represents and
warrants to each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder and constitutes a valid
and binding obligation upon such Selling Stockholder, except as may be limited
by applicable bankruptcy, reorganization insolvency, moratorium or similar
laws affecting the enforcement of creditors' rights generally, and by
equitable principles.
(b) The execution and delivery by or on behalf of such Selling
Stockholder of, and the performance by such Selling Stockholder of its
obligations under, this Agreement, the Custody Agreement signed by such
Selling Stockholder and ____________, as Custodian, relating to the deposit of
the Shares to be sold by such Selling Stockholder (the "Custody Agreement")
and the Power of Attorney appointing certain individuals as such Selling
Stockholder's attorneys-in-fact to the extent set forth therein, relating to
the transactions contemplated hereby and by the Registration Statement (the
"Power of Attorney") will not contravene any provision of applicable law, or
articles of incorporation or by-laws or trust documents, as applicable, of
such Selling Stockholder, or any agreement or other instrument binding upon
such Selling Stockholder or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over such Selling Stockholder, and
no consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by such Selling
Stockholder of its obligations under this Agreement or the Custody Agreement
or Power of Attorney of such Selling Stockholder, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(c) Such Selling Stockholder has, and on the Closing Date will
have, good and valid marketable title to the Shares to be sold by such Selling
Stockholder and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement and the Custody Agreement and
Power of Attorney of such Selling Stockholder, and to sell, transfer and
deliver the Shares to be sold by such Selling Stockholder.
(d) The Custody Agreement and the Power of Attorney have been
duly authorized, executed and delivered by such Selling Stockholder and are
valid and binding agreements of such Selling Stockholder except as may be
limited by applicable bankruptcy, reorganization insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights generally, and by
equitable principles.
(e) Upon delivery of and payment for the Shares to be sold by
such Selling Stockholder pursuant to this Agreement, the Underwriters will
receive good and valid title to such Shares free and clear of any security
interests, claims, liens and other encumbrances.
(f) All information furnished by or on behalf of such Selling
Stockholder in writing for use in the Registration Statement and Prospectus
is, and on the Closing Date will be, true, correct and complete, and does not,
and on the Closing Date will not, contain any untrue statement of a material
fact or omit to state any material fact necessary to make such information not
misleading.
3. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at U.S.$_______ a share (the
"Purchase Price"), the number of Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same
proportion to the number of Shares to be sold by such Seller as the number of
Shares set forth in Schedules I and II hereto opposite the name of such
Underwriter bears to the total number of Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters
shall have a one-time right to purchase, severally and not jointly, up to
787,500 Additional Shares at the Purchase Price. If the U.S. Representatives,
on behalf of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on
which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor
later than ten business days after the date of such notice. Additional Shares
may be purchased as provided in Section 5 hereof solely for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each U.S. Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as the U.S.
Representatives may determine) that bears the same proportion to the total
number of Additional Shares to be purchased as the number of U.S. Firm Shares
set forth in Schedule I hereto opposite the name of such U.S. Underwriter
bears to the total number of U.S. Firm Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder or (B) in the
case of each Selling Stockholder, transactions relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares or (C) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof or the issuance of any
securities reserved as of the date hereof under the Company's employee stock
plans of which the Underwriters have been advised in writing. In addition,
each Selling Stockholder agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.
4. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Sellers
are further advised by you that the Shares are to be offered to the public
initially at U.S.$________ a share (the "Public Offering Price") and to
certain dealers selected by you at a price that represents a concession not in
excess of U.S.$_________ a share under the Public Offering Price, and that any
Underwriter may allow, and such dealers may reallow, a concession, not in
excess of U.S.$_________ a share, to any Underwriter or to certain other
dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by
each Seller shall be made by wire transfer in immediately available funds in
New York City against delivery of such Firm Shares for the respective accounts
of the several Underwriters at 7:00 A.M., Pacific time, on __________, 199__,
or at such other time on the same or such other date, not later than
__________, 199__, as shall be designated in writing by you. The time and
date of such payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares to be sold by the Company shall be
made by wire transfer in immediately available funds in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 7:00 A.M., Pacific time, on the date specified in the notice
described in Section 2 or at such other time on the same or on such other
date, in any event not later than ___________, 199__, as shall be designated
in writing by the U.S. Representatives. The time and date of such payment,
are hereinafter referred to as the "Option Closing Date."
The Firm Shares and Additional Shares shall be registered in such names
and in such denominations as you shall request in writing not later than one
full business day prior to the Closing Date or the Option Closing Date, as the
case may be. The Firm Shares and Additional Shares shall be delivered to you
through the facilities of the Depository Trust Company, unless you otherwise
instruct, on the Closing Date or the Option Closing Date, as the case may be,
for the respective accounts of the several Underwriters with any transfer
taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [_____], Pacific time, on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the direction of
the possible change, in the rating accorded any of the Company's securities by
any "nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or
any development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and adverse and that makes
it, in your judgment, impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in clause (a)(i) above and to the effect that
the representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions on its part to
be performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date a
certificate on behalf of each respective Selling Stockholder, dated the
Closing Date, to the effect that the representations and warranties of such
Selling Stockholder are true and correct as of the Closing Date and that such
Selling Stockholder has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied on or before the
Closing Date.
(d) The Underwriters and each of the Selling Stockholders
shall have received on the Closing Date an opinion of Stoel Rives LLP, outside
counsel for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company incorporated in
a state of the United States has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and
to conduct its business as described in the Prospectus and is duly qualified
to transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Common Stock outstanding prior
to the issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of
each subsidiary of the Company incorporated in a state of the United States
have been duly and validly authorized and issued, are fully paid and non-
assessable and are owned directly by the Company, free and clear of all liens,
encumbrances, equities or claims, except that the Company owns only a majority
of the issued shares of capital stock of DP Applications;
(vi) the Shares have been duly authorized and, when
issued and delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights;
(vii) this Agreement has been duly authorized,
executed and delivered by the Company;
(viii) the execution and delivery by the Company
of, and the performance by the Company of its obligations under, this
Agreement will not contravene any provision of applicable law or the articles
of incorporation or by-laws of the Company or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the Company or any
of its subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or, to the best of such counsel's knowledge, any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is required
for the performance by the Company of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares by the U.S.
Underwriters;
(ix) the statements (A) in the Prospectus under the
captions "Certain United States Tax Consequences to Non-United States Holders"
and "Underwriters," and (B) in the Registration Statement in Items 14 and 15,
in each case insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know
of any legal or governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus and
are not so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required;
(xi) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended;
(xii) (A) such counsel is of the opinion that each
document, if any, filed pursuant to the Exchange Act and incorporated by
reference in the Registration Statement and Prospectus (except for financial
statements and schedules and other financial and statistical data included
therein as to which such counsel need not express any opinion) complied when
filed as to form in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder, (B) nothing has
come to such counsel's attention that has caused such counsel to believe that
(except for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief) the
Registration Statement and the Prospectus included therein and the documents
that have been incorporated by reference therein at the time the Registration
Statement became effective contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading and (C) nothing has come to such
counsel's attention that has caused such counsel to believe that (except for
financial statements and schedules and other financial and statistical data as
to which such counsel need not express any belief) the Prospectus contains any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(xiii) no holders of Common Stock or other
securities of the Company have registration rights with respect to such
securities that are triggered by this offering, except for registration rights
that have either been complied with by the Company or waived by the holders of
such registration rights or that are not applicable to this offering.
(e) The Underwriters shall have received on the Closing Date
an opinion, dated the Closing Date, from counsel for each of the Selling
Stockholders, which counsel shall be acceptable to the Underwriters, to the
effect that:
(i) this Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder except as may be
limited by applicable bankruptcy, reorganization insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights generally, and by
equitable principles;
(ii) the execution and delivery by or on behalf of
such Selling Stockholder of, and the performance by such Selling Stockholder
of its obligations under, this Agreement and the Custody Agreement and the
Power of Attorney of such Selling Stockholder will not contravene any
provision of applicable law, or the articles of incorporation or bylaws or
trust documents, as applicable, of such Selling Stockholder or, to the best of
such counsel's knowledge, any agreement or other instrument binding upon such
Selling Stockholder that is material to such Selling Stockholder or, to the
best of such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such Selling
Stockholder, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by such Selling Stockholder of its obligations under this
Agreement, except such as may be required by the securities or Blue Sky laws
of the various states in connection with the offer and sale of the Shares by
the U.S. Underwriters;
(iii) each Selling Stockholder has the legal right
and power, and all authorization and approval required by law, to enter into
this Agreement and the Custody Agreement and Power of Attorney of such Selling
Stockholder and to sell, transfer and deliver the Shares to be sold by such
Selling Stockholder; and, to such counsel's knowledge, without special
inquiry, such Selling Stockholder has valid marketable title to the Shares to
be sold by such Selling Stockholder and such sale, transfer and delivery is
not subject to any right of first refusal or other contractual restriction;
and each of the certificates evidencing such Shares is in proper legal form;
(iv) the Custody Agreement and the Power of
Attorney of each Selling Stockholder have been duly authorized, executed and
delivered by such Selling Stockholder and are valid and binding agreements of
such Selling Stockholder except as may be limited by applicable bankruptcy,
reorganization insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and by equitable principles; and
(v) delivery of the Shares to be sold by such
Selling Stockholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and other
encumbrances, assuming the Underwriters have acquired the Shares without
notice of any adverse claim.
(f) The Underwriters shall have received on the Closing Date
an opinion of __________, counsel for Sequent Computer Systems Limited
("Limited"), in form and substance satisfactory to you, to the effect that (i)
Limited has been duly incorporated, is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its business
as described in the Prospectus and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing would
not have a material adverse effect on the Company and its subsidiaries, taken
as a whole, and (ii) all of the issued shares of capital stock of Limited have
been duly and validly authorized and issued, are fully paid and non-assessable
and are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims.
(g) The Underwriters shall have received on the Closing Date
an opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters,
dated the Closing Date, covering the matters referred to in subparagraphs (v),
(vi), (viii) (but only as to the statements in the Prospectus under
"Underwriters") and (xii) of paragraph (d) above. With respect to the laws of
the State of Oregon, such counsel may rely on the opinion of Stoel Rives LLP,
counsel for the Company.
With respect to subparagraph (xii) of paragraph (d) above, Stoel
Rives LLP and Wilson Sonsini Goodrich & Rosati may state that their opinion
and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification, except as specified.
The opinions of Stoel Rives described in paragraphs (d) and (e)
above shall be rendered to the Underwriters at the request of the Company and
shall so state therein.
(h) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from Price Waterhouse LLP, independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus; provided that the letter delivered on the
Closing Date shall use a "cut-off date" not earlier than the date hereof.
(i) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions of
shares of Common Stock or certain other securities, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing Date.
(j) The several obligations of the U.S. Underwriters to
purchase Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related
to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a) To furnish to you, without charge, [______] signed copies
of the Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge,
prior to 5:00 P.M., New York time, on the business day next succeeding the
date of this Agreement and during the period mentioned in paragraph (c) below,
as many copies of the Prospectus and any supplements and amendments thereto or
to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the Commission
within the applicable period specified in Rule 424(b) under the Securities Act
any prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the Prospectus
is delivered to a Purchaser, not misleading, or if, in the opinion of counsel
for the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers (whose
names and addresses you will furnish to the Company) to which Shares may have
been sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a Purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earning statement covering the
twelve-month period ending __________, 1998 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company shall
pay or cause to be paid all expenses incident to the performance of the
obligations of the Company and the Selling Stockholders under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel
and the Company's accountants in connection with the registration and delivery
of the Shares under the Securities Act and all other fees or expenses in
connection with the preparation and filing of the Registration Statement, any
preliminary prospectus, the Prospectus and amendments and supplements to any
of the foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers, in
the quantities hereinabove specified, (ii) all costs and expenses related to
the transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) the cost of printing or
producing any Blue Sky or Legal Investment memorandum in connection with the
offer and sale of the Shares under state securities laws and all expenses in
connection with the qualification of the Shares for offer and sale under state
securities laws as provided in Section 6(d) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and disbursements of counsel
to the Underwriters incurred in connection with the review and qualification
of the offering of the Shares by the National Association of Securities
Dealers, Inc., (v) all fees and expenses in connection with the preparation
and filing of the registration statement on Form 8-A relating to the Common
Stock and all costs and expenses incident to listing the Shares on the Nasdaq
National Market and other national securities exchanges and foreign stock
exchanges, (vi) the cost of printing certificates representing the Shares,
(vii) the costs and charges of any transfer agent, registrar or depositary,
(viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing
of the offering of the Shares, including, without limitation, expenses
associated with the production of road show slides and graphics, fees and
expenses of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and lodging
expenses of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with the
road show, and (ix) all other costs and expenses incident to the performance
of the obligations of the Company hereunder for which provision is not
otherwise made in this Section; provided that each Selling Stockholder agrees
to pay or cause to be paid its pro rata share (based on the percentage that
the number of Shares sold by such Selling Stockholder bears to the total
number of Shares sold) of all underwriting discounts and commissions. In
addition, each Selling Shareholder, severally and not jointly, agrees to pay
or cause to be paid all taxes, if any, on the transfer and sale of the Shares
being sold by such Selling Stockholder and the fees and expenses of counsel
retained by such Selling Stockholder. It is understood, however, that except
as provided in this Section, Section 9 entitled "Indemnity and Contribution",
and the last paragraph of Section 11 below, the Underwriters will pay all of
their costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
9. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through
you expressly for use therein.
(b) Each Selling Stockholder agrees, severally and not
jointly, to indemnify and hold harmless each of the Underwriters, and their
respective directors, and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to such Selling Stockholder furnished in writing by or on behalf of
such Selling Stockholder expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the Company or
any Selling Stockholder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act ,from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b) or (c) of this
Section 9, such person (the "indemnified party") shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying
party shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (i) the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Underwriters and all
persons, if any, who control any Underwriter within the meaning of wither
Section 15 of the Securities Act or Section 20 of the Exchange Act, (ii) the
fees and expenses of more than one separate firm (in addition to any local
counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who control the Company within
the meaning of either such Section and (iii) the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Selling
Stockholders and all persons, if any, who control any Selling Stockholder
within the meaning of either such Section, and that all such fees and expenses
shall be reimbursed as they are incurred. In the case of any such separate
firm for the Underwriters and such control persons of the Underwriters, such
firm shall be designated in writing by Morgan Stanley & Co., Incorporated. In
the case of any such separate firm for the Company, and such directors,
officers and control persons of the Company, such firm shall be designated in
writing by the Company. In the case of any separate firm for the Selling
Stockholders and such control persons of any Selling Stockholder, such firm
shall be designated in writing by the Selling Stockholders. The indemnifying
party shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by the
second and third sentences of this paragraph, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in
paragraph (a), (b) or (c) of this Section 9 is unavailable to an indemnified
party or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then the indemnifying party under such paragraph, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party on the one
hand and the indemnified party or parties on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. In no
event shall any Selling Stockholder be liable for contribution for any losses,
claims, damages or liabilities, except insofar as the same are caused by any
untrue statement or omission or alleged untrue statement or omission based
upon information relating to such Selling Stockholder furnished in writing by
such Selling Stockholder. The relative benefits received by the Sellers on
the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate
Public Offering Price of the Shares. The relative fault of the Sellers on the
one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Sellers or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this
Section 9 are several in proportion to the respective number of Shares they
have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph (d)
of this Section 9. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 9, (ii)
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and
(ii) no Selling Stockholder shall be required to contribute any amount in
excess of the amount by which the total gross proceeds received by such
Selling Stockholder from the sale of the Shares exceeds the amount of damages
that such Selling Stockholder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Section 9 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
(g) The indemnity and contribution provisions contained in
this Section 9 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of
this Agreement, (ii) any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter, the Selling Stockholders or any
person controlling the Selling Stockholders, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company and the Selling Stockholders, if (a) after
the execution and delivery of this Agreement and prior to the Closing Date
(i) trading generally shall have been suspended or materially limited on or
by, as the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago
Board of Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event, singly or together with any other
such event, makes it, in your judgment, impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares that it has or they have agreed to purchase hereunder on such date, and
the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-
tenth of the aggregate number of the Shares to be purchased on such date, the
other Underwriters shall be obligated severally in the proportions that the
number of Firm Shares set forth opposite their respective names in Schedule I
or Schedule II bears to the aggregate number of Firm Shares set forth opposite
the names of all such non-defaulting Underwriters, or in such other
proportions as you may specify, to purchase the Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Shares that any
Underwriter has agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 11 by an amount in excess of one-ninth of such number
of Shares without the written consent of such Underwriter. If, on the Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares
to be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any non-
defaulting Underwriter, the Company or the Selling Stockholders. In any such
case either you or the Sellers shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. If, on the Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect
to which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that
such non-defaulting Underwriters would have been obligated to purchase in the
absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of any Seller to comply
with the terms or to fulfill any of the conditions of this Agreement, or if
for any reason any Seller shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to themselves,
for all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
SEQUENT COMPUTER SYSTEMS, INC.
By ______________________________
Name:
Title:
The Selling Stockholders named in
Schedule III hereto, acting severally
By _____________________________
Name:
Attorney-in-Fact
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co. Incorporated
By ________________________________
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. International Limited
By _________________________________
Name:
Title:
Schedule I
U.S. Underwriters
Underwriter Number of Firm Shares To Be
Purchased
Morgan Stanley & Co. Incorporated
Cowen & Company
SoundView Financial Group, Inc.
Total U.S. Firm Shares.............................4,200,000
Schedule II
International Underwriters
Underwriter Number of Firm Shares To Be
Purchased
Morgan Stanley & Co. International Limited
Cowen & Company
SoundView Financial Group, Inc.
Total International Firm Shares......................1,050,000
Schedule III
Selling Stockholders
Selling Stockholder Number of Firm Shares
To Be Sold
State Farm Mutual Automobile Insurance Company 981,700
Froley, Revy Investments Co., Inc. Account:
State of Oregon Equity Fund 63,241
Robert Mathis 5,620
Total Shares........................1,505,561
EXHIBIT A
[Form of Lock-up Letter]
___________, 1997
Morgan Stanley & Co. Incorporated
Cowen & Company
SoundView Financial Group, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Sequent Computer Systems, Inc., an Oregon
corporation (the "Company"), providing for the public offering (the "Public
Offering") by the several Underwriters, including Morgan Stanley (the
"Underwriters"), of ___________ shares (the "Shares") of the Common Stock,
$0.01 per share par value, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 90 days after the date of the final
prospectus relating to the Public Offering (the "Prospectus"), (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement or (b) transactions relating to shares
of Common Stock or other securities acquired in open market transactions after
the completion of the Public Offering. In addition, the undersigned agrees
that, without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 90 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for
Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be
made pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
(Name)
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES EXHIBIT 11
STATEMENT SHOWING CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING AND EARNINGS
PER AVERAGE COMMON SHARE
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 28, 1997 June 28, 1997
Weighted average number
of common shares outstanding 34,929 34,678
Application of the "treasury
stock" method to the stock option
and employee stock purchase plans (A) 3,202 2,710
Weighted average of common stock
equivalent shares attributable
to convertible debentures 575 575
Total common and common
equivalent shares, assuming
full dilution 38,706 37,963
Net income $ 8,597 $ 9,305
Add:
Interest on convertible debentures,
net of applicable income taxes 116 232
Net income, assuming full dilution $ 8,713 $ 9,357
Net income per common share,
assuming full dilution $ .23 $ .25
(A) Effective with the third quarter of 1996, the Company applied the
"Modified Treasury Stock" method to calculate outstanding shares for stock
options in accordance with APB 15.
The computation of primary net income per common share is not included as the
computation can be clearly determined from the material contained in this
report.