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The following is an excerpt from a S-4 SEC Filing, filed by TEXAS INSTRUMENTS INC on 10/21/1999.
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TEXAS INSTRUMENTS INC - S-4 - 19991021 - BUSINESS

BUSINESS OF TEXAS INSTRUMENTS

SEMICONDUCTOR

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

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

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

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

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

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

DEMAND FOR DIGITAL SIGNAL PROCESSORS/ANALOG INTEGRATED CIRCUITS

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

ACQUISITIONS AND DIVESTITURES

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

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

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

OTHER TEXAS INSTRUMENTS BUSINESSES

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

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

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

GENERAL INFORMATION

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

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

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BACKLOG

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

RAW MATERIALS

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

PATENTS AND TRADEMARKS

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

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

RESEARCH AND DEVELOPMENT

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

SEASONALITY

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

EMPLOYEES

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

PROPERTIES

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

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

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


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

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

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

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

INDEMNIFICATION OF DIRECTORS AND OFFICERS

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

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

WHERE YOU CAN FIND MORE INFORMATION ABOUT TEXAS INSTRUMENTS

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

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

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

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

BUSINESS OF POWER TRENDS

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

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

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

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

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

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

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MANAGEMENT OF TEXAS INSTRUMENTS

DIRECTORS

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

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

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

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

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

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

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

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

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

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

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

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

DIRECTORS' COMPENSATION

Cash Compensation

Directors who are not employees are paid each year:

- A board retainer of $40,000.

- A committee retainer of $15,000.

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

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

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

Deferral Election

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

Restricted Stock Units

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

Stock Options

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

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Director Award Program

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

EXECUTIVE OFFICERS

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

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

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

EXECUTIVE COMPENSATION

Compensation Overview

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

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

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

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

Summary Compensation Table

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

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


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

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

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

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

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

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

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

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

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

Table of Option Grants in 1998

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

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


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

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

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

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

U.S. Pension Plan Table

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

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

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

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


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

80

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

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

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

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

U.K. Pension Plan Table

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

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


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

81

TEXAS INSTRUMENTS SHARE OWNERSHIP OF CERTAIN PERSONS

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

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


* Less than 1%.

(1) Texas Instruments understands that, as of December 31, 1998, (a) FMR Corp. and its chairman, Edward C. Johnson 3d, had sole dispositive power with respect to all of the above shares and FMR Corp. had sole voting power with respect to 6,663,934 of the above shares, and (b) the above shares include 75,565,900 shares beneficially owned by Fidelity Management & Research Company, a wholly-owned subsidiary of FMR Corp., as a result of acting as investment advisor to several investment companies, and as a result of acting as a sub-advisor to Fidelity American Special Situations Trust.
(2) Texas Instruments understands that as of December 31, 1998, Capital Research and Management Company had sole dispositive power with respect to all of the above shares.

As of December 31, 1998, the Texas Instruments Employees Master Profit Sharing Trust held 44,177,498 shares (5.7%) of Texas Instruments common stock. Pursuant to the terms of the trust, participants have the power to determine the voting and, to the extent permitted, disposition of shares held by the trust.

The merger will not have a significant impact on the stock ownership and rights of any person listed in the table.

82

DESCRIPTION OF CAPITAL STOCK OF TEXAS INSTRUMENTS

GENERAL

The authorized capital stock of Texas Instruments consists of 1,200,000,000 shares of common stock, $1.00 par value per share, and 10,000,000 shares of preferred stock, $25.00 par value, of which shares have been designated Series B Participating Cumulative Preferred Stock. As of September 30, 1999, there were issued 793,506,626 shares of common stock, of which 1,095,147 were treasury shares and 792,411,479 were outstanding, and Texas Instruments had no preferred stock issued or outstanding. The following summary of the terms of Texas Instruments' capital stock does not purport to be complete and is qualified in its entirety by reference to the applicable provisions of Delaware law and Texas Instruments' restated certificate of incorporation, as amended.

THE COMMON STOCK

The holders of shares of Texas Instruments common stock, subject to the preferential rights of the holders of any shares of preferred stock of Texas Instruments, are entitled to dividends when and as declared by the Texas Instruments board of directors. The holders of the Texas Instruments common stock have one vote per share on all matters submitted to a vote of the stockholders, and the right to share pro rata in the net assets of Texas Instruments in liquidation after payment of any amounts due to creditors and in respect of any preferred stock of Texas Instruments. Holders of shares of Texas Instruments common stock are not entitled as a matter of right to any preemptive or subscription rights and are not entitled to cumulative voting for directors. All outstanding shares of Texas Instruments common stock are, and the shares of Texas Instruments common stock issued upon any conversion or exchange of any debt securities or preferred stock providing for such conversion or exchange will be, fully paid and nonassessable.

The bylaws of Texas Instruments provide that the annual meeting of stockholders shall be held on the third Thursday in April each year or on such other date as may be fixed by the Texas Instruments board of directors and as stated in a written notice, which must be mailed or delivered to each stockholder at least 10 days prior to any stockholder meeting.

Texas Instruments is authorized to issue additional shares of common stock without further stockholder approval, except as may be required by applicable law or stock exchange regulations.

The transfer agent and registrar for Texas Instruments' common stock is Harris Trust and Savings Bank, 311 West Monroe Street, Chicago, Illinois 60690.

THE PREFERRED STOCK

Under its restated certificate of incorporation, Texas Instruments is authorized to issue up to 10,000,000 shares of preferred stock, in one or more series, with such designations and such relative voting, dividend, liquidation, conversion and other rights, preferences and limitations as are stated in the restated certificate of incorporation, or any certificate of designation establishing such series adopted by the Texas Instruments board of directors. The 10,000,000 authorized but unissued shares of preferred stock may be issued pursuant to resolution of the Texas Instruments board of directors without the vote of the holders of any capital stock of Texas Instruments.

THE RIGHTS PLAN

On June 18, 1998, the Texas Instruments board of directors declared a dividend of one preferred stock purchase right (a "Right") for each outstanding share of Texas Instruments common stock. As a result of the two-for-one stock split effective August 16, 1999, each share of Texas Instruments common stock is now associated with one-half of a Right. The dividend was paid on June 30, 1998 (the "Record Date") to holders of record of Texas Instruments common stock as of the close of business on that date. The terms and conditions of the Rights are set forth in a Rights Agreement dated as of June 19, 1998

83

between Texas Instruments and Harris Trust and Savings Bank, as Rights Agent (as amended by Amendment No. 1 to the Rights Agreement, the "Rights Agreement"). The Rights will expire on June 18, 2008, unless earlier exchanged or redeemed.

Prior to the Distribution Date (as defined below), the Rights will be evidenced by the certificates for and will be transferred with the Texas Instruments common stock, and the registered holders of the Texas Instruments common stock will be deemed to be the registered holders of the Rights. After the Distribution Date, the Rights Agent will mail separate certificates evidencing the Rights to each record holder of the common stock as of the close of business on the Distribution Date, and thereafter the Rights will be transferable separately from the common stock. The "Distribution Date" generally means the earlier of (1) the close of business on the 10th day after the date of the first public announcement that a person, other than Texas Instruments or any of its subsidiaries or any employee benefit plan of Texas Instruments or any such subsidiary, has acquired beneficial ownership of 20% or more of the outstanding shares of common stock (an "Acquiring Person") and (2) the close of business on the 10th business day, or such later day as may be designated by the Texas Instruments board of directors before any person has become an Acquiring Person, after the date of the commencement of a tender or exchange offer by any person which would, if consummated, result in such person becoming an Acquiring Person.

Prior to the Distribution Date, the Rights will not be exercisable to purchase Series B Participating Cumulative Preferred Stock (the "Series B Preferred Stock"). After the Distribution Date, each Right will be exercisable to purchase, for $200 (the "Purchase Price"), one one-thousandth of a share of Series B Preferred Stock.

At any time after any person has become an Acquiring Person, but before the occurrence of any of the events described in the second succeeding sentence, each Right, other than Rights beneficially owned by the Acquiring Person and certain affiliated persons, will entitle the holder to purchase, for the Purchase Price, a number of shares of Texas Instruments common stock having a market value of twice the Purchase Price. At any time after any person has become an Acquiring Person, but before any person becomes the beneficial owner of 50% or more of the outstanding shares of Texas Instruments common stock or the occurrence of any of the events described in the next sentence, the Texas Instruments board of directors may exchange all or part of the Rights, other than Rights beneficially owned by an Acquiring Person and certain affiliated persons, for shares of Texas Instruments common stock at an exchange ratio of one share of Texas Instruments common stock per Right. If, after any person has become an Acquiring Person, (1) Texas Instruments is involved in a merger or other business combination in which Texas Instruments is not the surviving corporation or its common stock is exchanged for other securities or assets or
(2) Texas Instruments and/or one or more of its subsidiaries sell or otherwise transfer assets or earning power aggregating more than 50% of the assets or earning power of Texas Instruments and its subsidiaries, taken as a whole, then each Right, other than Rights beneficially owned by an Acquiring Person and certain affiliated persons, will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock of the other party to such business combination or sale, or in certain circumstances, an affiliate, having a market value of twice the Purchase Price.

The Texas Instruments board of directors may redeem all of the Rights at a price of $0.01 per Right at any time before any person has become an Acquiring Person. For so long as the Rights are redeemable, the Rights Agreement may be amended in any respect. At any time when the Rights are no longer redeemable, the Rights Agreement may be amended in any respect that does not adversely affect Rights holders, other than any Acquiring Person and certain affiliated persons, cause the Rights Agreement to become amendable other than as described in this sentence or cause the Rights again to become redeemable.

Rights holders have no rights as holders of Texas Instruments common stock, including the right to vote and to receive dividends.

The Rights Agreement includes antidilution provisions designed to prevent efforts to diminish the effectiveness of the Rights.

84

Each outstanding share of Texas Instruments common stock on the Record Date received one Right. Shares of common stock issued after the Record Date and prior to the Distribution Date will be issued with a Right attached so that all shares of Texas Instruments common stock outstanding prior to the Distribution Date will have Rights attached. As a result of the two-for-one stock split effective August 16, 1999, each share of Texas Instruments common stock is now associated with one-half of a Right.

The Rights may have antitakeover effects. The Rights may cause substantial dilution to a person that attempts to acquire Texas Instruments without a condition to such an offer that a substantial number of the Rights be acquired or that the Rights be redeemed or declared invalid. The Rights should not interfere with any merger or other business combination approved by the Texas Instruments board of directors since the Rights may be redeemed by Texas Instruments as described above.

The foregoing description of the Rights Agreement is qualified in its entirety by reference to the full text of the Rights Agreement, which is included as an exhibit to documents filed with the Securities and Exchange Commission and incorporated by reference.

LEGAL MATTERS

The validity of the shares of Texas Instruments common stock to be issued in the merger and certain United States federal income tax consequences of the merger will be passed upon for Texas Instruments by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New York.

Certain United States federal income tax consequences of the merger will be passed upon for Power Trends by Johnson and Colmar, Chicago, Illinois.

INDEPENDENT AUDITORS

The consolidated financial statements of Texas Instruments as of December 31, 1998 and 1997 and for each of the years in the three-year period ended December 31, 1998 included in this proxy statement/ prospectus have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein. The financial statements of Power Trends, Inc. as of June 30, 1999 and 1998 and for each of the years in the three-year period ended June 30, 1999 included in this proxy statement/ prospectus have been audited by Arthur Andersen LLP, independent certified public accountants, as set forth in their report thereon included therein and incorporated herein.

85

INDEX TO FINANCIAL STATEMENTS

TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES

                                                              PAGE
                                                              ----
Independent Auditors' Report................................   F-2
Consolidated Financial Statements -- Income -- for the years
  ended December 31, 1998, 1997 and 1996....................   F-3
Consolidated Financial Statements -- Balance Sheet -- as of
  December 31, 1998 and 1997................................   F-4
Consolidated Financial Statements -- Cash Flows -- for the
  years ended December 31, 1998, 1997 and 1996..............   F-5
Consolidated Financial Statements -- Stockholders'
  Equity -- for the years ended December 31, 1998, 1997 and
  1996......................................................   F-6
Notes to Financial Statements...............................   F-7
Consolidated Quarterly Financial Data -- for the years 1998
  and 1997 (unaudited)......................................  F-31
Consolidated Financial Statements -- Income -- for the six
  months ended June 30, 1999 and 1998 (unaudited)...........  F-33
Consolidated Financial Statements -- Balance Sheet -- as of
  June 30, 1999 (unaudited) and December 31, 1998...........  F-34
Notes to Financial Statements (unaudited)...................  F-35

POWER TRENDS, INC.

                                                              PAGE
                                                              ----
Independent Auditors' Report................................  F-40
Balance Sheets as of June 30, 1999 and 1998.................  F-41
Statements of Income for the years ended June 30, 1999, 1998
  and 1997..................................................  F-42
Statements of Changes in Convertible Redeemable Preferred
  Stock and Common Stockholders' Deficit for the years ended
  June 30, 1999, 1998 and 1997..............................  F-43
Statements of Cash Flows for the years ended June 30, 1999,
  1998 and 1997.............................................  F-44
Notes to the Financial Statements...........................  F-45

F-1

REPORT OF ERNST & YOUNG LLP,

INDEPENDENT AUDITORS

The Board of Directors
Texas Instruments Incorporated

We have audited the accompanying consolidated balance sheets of Texas Instruments Incorporated and subsidiaries (the Company) at December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Texas Instruments Incorporated and subsidiaries at December 31, 1998 and 1997, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Dallas, Texas
January 19, 1999

F-2

CONSOLIDATED FINANCIAL STATEMENTS

INCOME

                                                                 MILLIONS OF DOLLARS,
                                                               EXCEPT PER-SHARE AMOUNTS
                                                                 FOR THE YEARS ENDED
                                                                     DECEMBER 31,
                                                              --------------------------
                                                               1998      1997      1996
                                                              ------    ------    ------
Net Revenues................................................  $8,460    $9,750    $9,940
                                                              ------    ------    ------
Operating costs and expenses:
  Cost of revenues..........................................   5,394     6,067     7,146
  Research and development..................................   1,206     1,536     1,181
  Marketing, general and administrative.....................   1,461     1,532     1,639
                                                              ------    ------    ------
          Total.............................................   8,061     9,135     9,966
                                                              ------    ------    ------
Profit (loss) from operations...............................     399       615       (26)
Other income (expense) net..................................     293       192        76
Interest on loans...........................................      75        94        73
                                                              ------    ------    ------
Income (loss) from continuing operations before provision
  for income taxes and extraordinary item...................     617       713       (23)
Provision for income taxes..................................     210       411        23
                                                              ------    ------    ------
Income (loss) from continuing operations before
  extraordinary item........................................     407       302       (46)
Discontinued operations:
  Income from operations....................................      --        52       109
  Gain on sale..............................................      --     1,473        --
                                                              ------    ------    ------
Income before extraordinary item............................     407     1,827        63
Extraordinary item: extinguishment of debt..................      --       (22)       --
                                                              ------    ------    ------
Net income..................................................  $  407    $1,805    $   63
                                                              ======    ======    ======
Diluted earnings (loss) per common share:
  Continuing operations before extraordinary item...........  $  .51    $  .38    $ (.06)
  Discontinued operations:
     Income from operations.................................      --       .07       .14
     Gain on sale...........................................      --      1.85        --
  Extraordinary item........................................      --      (.03)       --
                                                              ------    ------    ------
Net income..................................................  $  .51    $ 2.27    $  .08
                                                              ======    ======    ======
Basic earnings (loss) per common share:
  Continuing operations before extraordinary item...........  $  .52    $  .39    $ (.06)
  Discontinued operations:
     Income from operations.................................      --       .07       .14
     Gain on sale...........................................      --      1.91        --
  Extraordinary item........................................      --      (.03)       --
                                                              ------    ------    ------
Net income..................................................  $  .52    $ 2.34    $  .08
                                                              ======    ======    ======

See accompanying notes.

F-3

CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

ASSETS

                                                              MILLIONS OF DOLLARS,
                                                                EXCEPT PER-SHARE
                                                                     AMOUNTS
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                1998        1997
                                                              ---------   ---------
Current assets:
  Cash and cash equivalents.................................   $   540     $ 1,015
  Short-term investments....................................     1,709       2,005
  Accounts receivable, less allowance for losses of $97
     million in 1998 and $73 million in 1997................     1,343       1,705
  Inventories...............................................       596         742
  Prepaid expenses..........................................        75          59
  Deferred income taxes.....................................       583         577
                                                               -------     -------
          Total current assets..............................     4,846       6,103
                                                               -------     -------
Property, plant and equipment at cost.......................     6,379       7,414
  Less accumulated depreciation.............................    (3,006)     (3,234)
                                                               -------     -------
          Property, plant and equipment (net)...............     3,373       4,180
                                                               -------     -------
Investments.................................................     2,564          69
Deferred income taxes.......................................        23         134
Other assets................................................       444         363
                                                               -------     -------
          Total assets......................................   $11,250     $10,849
                                                               =======     =======

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Loans payable and current portion long-term debt..........   $   267     $    71
  Accounts payable and accrued expenses.....................     1,582       2,082
  Income taxes payable......................................       193         154
  Accrued retirement and profit sharing contributions.......       154         189
                                                               -------     -------
          Total current liabilities.........................     2,196       2,496
                                                               -------     -------
Long-term debt..............................................     1,027       1,286
Accrued retirement costs....................................       895         731
Deferred income taxes.......................................       381         288
Deferred credits and other liabilities......................       224         134
Stockholders' equity:
  Preferred stock, $25 par value. Authorized -- 10,000,000
     shares
     Participating cumulative preferred. None issued........        --          --
  Common stock, $1 par value. Authorized -- 1,200,000,000
     shares
     Shares issued: 1998 -- 392,395,997;
      1997 -- 390,359,317...................................       392         390
  Paid-in capital...........................................     1,178       1,183
  Retained earnings.........................................     4,795       4,488
  Less treasury common stock at cost
     Shares: 1998 -- 1,716,038; 1997 -- 860,765.............      (134)        (94)
  Accumulated other comprehensive income....................       296         (53)
                                                               -------     -------
          Total stockholders' equity........................     6,527       5,914
                                                               -------     -------
          Total liabilities and stockholders' equity........   $11,250     $10,849
                                                               =======     =======

See accompanying notes.

F-4

CONSOLIDATED FINANCIAL STATEMENTS

CASH FLOWS

                                                                 MILLIONS OF DOLLARS,
                                                               EXCEPT PER-SHARE AMOUNTS
                                                                  FOR THE YEARS ENDED
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                               1998      1997      1996
                                                              -------   -------   -------
Continuing operations:
  Cash flows from operating activities:
    Income (loss) from continuing operations before
     extraordinary item.....................................  $   407   $   302   $   (46)
    Depreciation............................................    1,169     1,109       904
    Acquired in-process research and development............       25       461       192
    Deferred income taxes...................................      (50)        9       (51)
    Net currency exchange (gains) losses....................       (4)        6         7
      (Increase) decrease in working capital (excluding cash
       and cash equivalents, short-term investments,
       deferred income taxes, and loans payable and current
       portion long-term debt):
         Accounts receivable................................      289       (39)      250
         Inventories........................................       74       (34)      245
         Prepaid expenses...................................      (17)      (19)        9
         Accounts payable and accrued expenses..............     (427)      (36)     (404)
         Income taxes payable...............................       24       (26)       (3)
         Accrued retirement and profit sharing
           contributions....................................      (24)      128      (283)
    Extraordinary item: extinguishment of debt..............       --       (22)       --
    Increase in noncurrent accrued retirement costs.........       42         7        79
    Other...................................................     (257)       (3)     (101)
                                                              -------   -------   -------
  Net cash provided by operating activities.................    1,251     1,843       798
  Cash flows from investing activities:
    Additions to property, plant and equipment..............   (1,031)   (1,238)   (2,063)
    Purchases of short-term investments.....................   (2,244)   (2,457)      (27)
    Sales and maturities of short-term investments..........    2,537       479       202
    Acquisition of businesses, net of cash acquired.........     (152)     (304)     (313)
    Loans and payments made in connection with sale of
     memory business........................................     (680)       --        --
    Proceeds from sale of other businesses..................      100       177       150
    Proceeds from sale of discontinued operations less
     income taxes and transaction costs.....................       --     2,138        --
                                                              -------   -------   -------
  Net cash used in investing activities.....................   (1,470)   (1,205)   (2,051)
  Cash flows from financing activities:
    Additions to loans payable..............................       --        --       288
    Payments on loans payable...............................       (4)     (314)       (2)
    Additions to long-term debt.............................       --        28       871
    Payments on long-term debt..............................      (68)     (256)     (199)
    Dividends paid on common stock..........................     (133)     (131)     (129)
    Sales and other common stock transactions...............      196       140        35
    Common stock repurchase program.........................     (253)      (86)       --
    Other...................................................       --        (2)       (1)
                                                              -------   -------   -------
  Net cash provided by (used in) financing activities.......     (262)     (621)      863
  Effect of exchange rate changes on cash...................        6       (23)      (16)
                                                              -------   -------   -------
  Cash used in continuing operations........................     (475)       (6)     (406)
                                                              -------   -------   -------
Discontinued operations:
  Operating activities......................................       --        73        86
  Investing activities......................................       --       (16)      (80)
  Financing activities......................................       --        --        --
                                                              -------   -------   -------
  Cash provided by discontinued operations..................       --        57         6
                                                              -------   -------   -------
  Net increase (decrease) in cash and cash equivalents......     (475)       51      (400)
  Cash and cash equivalents at beginning of year............    1,015       964     1,364
                                                              -------   -------   -------
  Cash and cash equivalents at end of year..................  $   540   $ 1,015   $   964
                                                              =======   =======   =======

See accompanying notes.

F-5

CONSOLIDATED FINANCIAL STATEMENTS

STOCKHOLDERS' EQUITY

                                                  MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS
                                                                                        ACCUMULATED
                                                                            TREASURY       OTHER
                                              COMMON   PAID-IN   RETAINED    COMMON    COMPREHENSIVE
                                              STOCK    CAPITAL   EARNINGS    STOCK        INCOME*
                                              ------   -------   --------   --------   -------------
Balance, December 31, 1995..................   $190    $1,081     $2,881      $ (12)       $ (45)
                                               ----    ------     ------      -----        -----
1996
  Net income................................     --        --         63         --           --
  Dividends declared on common stock ($.17
     per share).............................     --        --       (130)        --           --
  Common stock issued on exercise of stock
     options................................     --        28         --         --           --
  Other stock transactions, net.............     --         7         --         --           --
  Pension liability adjustment..............     --        --         --         --            6
  Equity and cash investments adjustment....     --        --         --         --           28
                                               ----    ------     ------      -----        -----
Balance, December 31, 1996..................    190     1,116      2,814        (12)         (11)
                                               ----    ------     ------      -----        -----
1997
  Net income................................     --        --      1,805         --           --
  Dividends declared on common stock ($.17
     per share).............................     --        --       (131)        --           --
  Two-for-one common stock split............    195      (195)        --         --           --
  Common stock issued:
     On exercise of stock options...........      3        95         --          5           --
     On conversion of debentures............      2       101         --         --           --
  Stock repurchase program..................     --        --         --        (86)          --
  Other stock transactions, net.............     --        66         --         (1)          --
  Pension liability adjustment..............     --        --         --         --          (24)
  Equity and cash investments adjustment....     --        --         --         --          (18)
                                               ----    ------     ------      -----        -----
Balance, December 31, 1997..................    390     1,183      4,488        (94)         (53)
                                               ----    ------     ------      -----        -----
1998
  Net income................................     --        --        407         --           --
  Dividends declared on common stock ($.128
     per share).............................     --        --       (100)        --           --
  Common stock issued on exercise of stock
     options................................      2      (111)        --        254           --
  Stock repurchase program..................     --        --         --       (294)          --
  Other stock transactions, net.............     --       106         --         --           --
  Pension liability adjustment..............     --        --         --         --         (117)
  Equity, debt and cash investments
     adjustment.............................     --        --         --         --          466
                                               ----    ------     ------      -----        -----
Balance, December 31, 1998..................   $392    $1,178     $4,795      $(134)       $ 296
                                               ====    ======     ======      =====        =====

Comprehensive income, i.e., net income plus other comprehensive income, totaled $756 million in 1998, $1,763 million in 1997 and $97 million in 1996.

See accompanying notes.

F-6

NOTES TO FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND PRACTICES

Texas Instruments Incorporated (referred to as, the "company," and/or "TI") adopted SFAS No. 130 in the first quarter of 1998. It required disclosure of comprehensive income, i.e., net income plus direct adjustments to stockholders' equity such as equity, debt and cash investment adjustments and pension liability adjustments. Also in 1998, the company adopted SFAS No. 132, which mandated changes in disclosures for pension and retiree health care plans. In 1997, the company adopted SFAS No. 128, which required disclosure of two new earnings per share amounts (diluted and basic) and elimination of prior earnings per share amounts. Also in 1997, the company adopted SFAS No. 131, which required a new basis of determining reportable business segments, i.e., the management approach. Disclosures under these 1997 and 1998 standards were provided on a retroactive basis. None affected reported net income.

Accounting standard SFAS No. 133 was issued in 1998 and is effective in 2000. It requires that all derivatives be marked-to-market on an ongoing basis. This applies whether the derivatives are stand-alone instruments, such as forward currency exchange contracts and interest rate swaps, or embedded derivatives, such as call options contained in convertible debt investments. Along with the derivatives, the underlying hedged items are also to be marked-to-market on an ongoing basis. These market value adjustments are to be included either in the income statement or stockholders' equity, depending on the nature of the transaction. The company expects to adopt the standard in the first quarter of 2000 on a cumulative basis. Based on analysis to date, the company expects the most significant impact of this standard will be the cumulative, as well as ongoing mark-to-market, adjustment through the income statement of the embedded call option on Micron Technology, Inc. (Micron) common shares contained in the convertible note received from Micron in connection with TI's 1998 sale of its memory business. The value of this option can be volatile given its sensitivity to changes in the value of Micron common shares. For example, at September 30, 1998, the estimated value of the option was $82 million; at December 31, 1998, it was $192 million. Under SFAS No. 133, this change in value of $110 million would be included in the income statement. Under current accounting principles, the change in value of the Micron convertible note, including the embedded call, is an adjustment to stockholders' equity.

Accounting standard SOP 98-1 was issued in 1998 and is effective in 1999. It requires capitalization of the development costs of software to be used internally, e.g., for manufacturing or administrative processes. The company, which currently capitalizes significant development costs for internal-use software, expects to adopt the standard in the first quarter of 1999 for developmental costs incurred in that quarter and thereafter. The effect is not expected to be material. Accounting standard SOP 98-5 was issued in 1998 and is effective in 1999. It requires expensing, rather than capitalizing, the cost of start-up activities. The company currently expenses such amounts as incurred and therefore expects no material effect from adoption of this standard.

The consolidated financial statements include the accounts of all subsidiaries. The preparation of financial statements requires the use of estimates from which final results may vary. Intercompany balances and transactions have been eliminated. Certain amounts in prior years' financial statements and related notes have been reclassified to conform to the 1998 presentation. The U.S. dollar is the functional currency for financial reporting. With regard to accounts recorded in currencies other than U.S. dollars, current assets (except inventories), deferred income taxes, other assets, current liabilities and long-term liabilities are remeasured at exchange rates in effect at year-end. Inventories, property, plant and equipment and depreciation thereon are remeasured at historic exchange rates. Revenue and expense accounts other than depreciation for each month are remeasured at the appropriate month-end rate of exchange. Net currency exchange gains and losses from remeasurement and forward currency exchange contracts to hedge net balance sheet exposures are charged or credited on a current basis to other income (expense) net. Gains and losses from forward currency exchange contracts to hedge specific transactions are deferred and included in the measurement of the related transactions. Gains and losses from interest rate swaps are included on the accrual basis in interest expense. Gains and losses from terminated forward

F-7

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

currency exchange contracts and interest rate swaps are deferred and recognized consistent with the terms of the underlying transaction.

As discussed in the Divestitures note, the consolidated financial statements include the effect of two significant divestitures: the sale of the company's memory business and related joint venture interests to Micron in September 1998, which was accounted for as a sale of a business, and the sale of the defense business to Raytheon Company in July 1997, which was accounted for as a discontinued operation.

The description "accounted for as a sale of a business" means the sale of TI's memory business, which was a portion of the company's Semiconductor segment, was not accounted for as a discontinued operation under APB No. 30, but as a part of continuing operations, as discussed in paragraph 13 of that opinion.

The description "accounted for as a discontinued operation" means the sale of TI's Defense Systems and Electronics segment was accounted for under APB No. 30, paragraph 8, as the disposal of a segment of a business. Accordingly, the operating results and gain on the sale of this business were presented in TI's financial statements as discontinued operations, separate from TI's continuing operations.

Inventories are stated at the lower of cost or estimated realizable value. Cost is generally computed on a currently adjusted standard (which approximates current average costs) or average basis.

Revenues are generally recognized as products are shipped. Royalty revenue is recognized by the company upon fulfillment of its contractual obligations and determination of a fixed royalty amount or, in the case of ongoing royalties, upon sale by the licensee of royalty-bearing products, as estimated by the company.

Depreciation is computed by either the declining-balance method (primarily 150 percent declining method) or the sum-of-the-years-digits method. Fully depreciated assets are written off against accumulated depreciation. Advertising costs are expensed as incurred. Advertising expense was $100 million in 1998, $128 million in 1997 and $124 million in 1996.

Share amounts have been retroactively adjusted for the two-for-one stock split in August 1999. Computation of earnings per common share (EPS) amounts for income (loss) from continuing operations before extraordinary item is as follows (millions, except per-share amounts):

                                               1998                     1997                    1996
                                      ----------------------   ----------------------   ---------------------
                                      INCOME   SHARES   EPS    INCOME   SHARES   EPS    LOSS   SHARES    EPS
                                      ------   ------   ----   ------   ------   ----   ----   ------   -----
Basic EPS...........................   $407    781.0    $.52    $302    770.3    $.39   $(46)  758.8    $(.06)
Dilutives:
  Stock options/compensation
     plans..........................     --     20.9              --     18.6             --      --
  Convertible debentures............     --       --              --      6.6             --      --
                                       ----    -----    ----    ----    -----    ----   ----   -----    -----
Diluted EPS.........................   $407    801.9    $.51    $302    795.5    $.38   $(46)  758.8    $(.06)
                                       ====    =====    ====    ====    =====    ====   ====   =====    =====

The EPS computation for 1996 excludes 9.6 million shares for stock options/compensation plans and 10.0 million shares for convertible debentures because their effect would have been antidilutive.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Debt securities with original maturities within three months are considered cash equivalents. Debt securities with original maturities beyond three months have remaining maturities within 13 months and are considered short-term investments. These cash equivalent and short-term investment debt securities are available for sale and stated at fair value, which approximates their specific amortized cost. As of December 31, 1998, these debt securities consisted primarily of the following types: corporate ($1,092 million) and asset-backed commercial paper ($679 million). At December 31, 1997, these debt

F-8

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

securities consisted primarily of the following types: corporate ($1,943 million) and asset-backed commercial paper ($623 million). Gross realized and unrealized gains and losses for each of these security types were immaterial in 1998, 1997 and 1996. Proceeds from sales of these cash equivalent and short- term investment debt securities in 1998, 1997 and 1996 were $647 million, $859 million and $10 million.

INVENTORIES

                                                              MILLIONS OF
                                                                DOLLARS
                                                              1998   1997
                                                              ----   ----
Raw materials and purchased parts...........................  $ 77   $105
Work in process.............................................   354    364
Finished goods..............................................   165    273
                                                              ----   ----
Inventories.................................................  $596   $742
                                                              ====   ====

Prior to the sale of its memory business to Micron in 1998, TI participated in DRAM manufacturing joint ventures. TI held minority interests in, and had long-term inventory purchase commitments with, each joint venture. Under the agreements, TI purchased the output of the ventures at prices based upon percentage discounts from TI's average selling prices.

Inventory purchases from the ventures aggregated $416 million in 1998, $977 million in 1997 and $1,176 million in 1996. Receivables from and payables to the ventures were $135 million and $69 million at December 31, 1997. TI amortized its cost of the ventures over the expected initial output period of three to five years, and recognized its share of any cumulative venture net losses in excess of amortization. The related expense charged to operations was $40 million in 1998, $88 million in 1997 and $33 million in 1996.

PROPERTY, PLANT AND EQUIPMENT AT COST

                                                                                  MILLIONS OF DOLLARS
                                                              DEPRECIABLE LIVES     1998       1997
                                                              -----------------   --------   --------
Land........................................................                       $   88     $   94
Buildings and improvements..................................   5-40 years           2,297      2,583
Machinery and equipment.....................................   3-10 years           3,994      4,737
                                                                                   ------     ------
          Total.............................................                       $6,379     $7,414
                                                                                   ======     ======

Authorizations for property, plant and equipment expenditures in future years were approximately $541 million at December 31, 1998, and $1105 million at December 31, 1997.

INVESTMENTS

At year-end 1998, equity investments primarily consisted of 28,933,092 Micron common shares, along with several other publicly traded investments. Debt investments consisted of 6.5% Micron convertible and subordinated notes. The convertible note (convertible into 12,333,358 Micron common shares at $60 per share) and the subordinated note have face amounts of $740 million and $210 million. The notes, which mature in 2005, have a weighted-average imputed interest rate of 8.7%. The Micron securities were received in 1998 in connection with TI's sale of its memory business.

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

F-9

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

Following is information on the investments:

                                                                  MILLIONS OF DOLLARS
                                                                           UNREALIZED
                                                        FAIR    --------------------------------
                                                       VALUE    GAINS   (LOSSES)   NET     COST
                                                       ------   -----   --------   ----   ------
1998
Equity investments...................................  $1,516   $643    $    (51)  $592   $  924
Debt investments.....................................     978    139          --    139      839
TI Ventures..........................................      37      5          --      5       32
Other investments....................................      33      5          (5)    --       33
                                                       ------   ----    --------   ----   ------
          Total......................................  $2,564   $792    $    (56)  $736   $1,828
                                                       ======   ====    ========   ====   ======
1997
Equity investments...................................  $   53   $ 50    $    (36)  $ 14   $   39
TI Ventures..........................................      10     --          --     --       10
Other investments....................................       6      5          --      5        1
                                                       ------   ----    --------   ----   ------
          Total......................................  $   69   $ 55    $    (36)  $ 19   $   50
                                                       ======   ====    ========   ====   ======

Investments are stated at fair value, which is based on market quotes, current interest rates or management estimates, as appropriate. Adjustments to fair value of the equity and debt investments, which are classified as available-for-sale, are recorded as an increase or decrease in stockholders' equity. Adjustments to fair value of the venture fund are recorded in other income (expense) net. Adjustments to fair value of the other investments, which are classified as trading, are recorded in operating expense. Cost or amortized cost, as appropriate, was determined on a specific identification basis. Proceeds from sales of equity and debt investments were zero in 1998, $26 million in 1997 and zero in 1996. There were no gross realized gains or losses from sales of equity and debt investments in 1998 and 1996, and there was a $16 million gain in 1997.

NON-CASH INVESTING ACTIVITIES

Following are descriptions of those divestitures and acquisitions by TI which involved significant non-cash amounts. In September, 1998, TI sold its memory business to Micron Technology, Inc. (Micron). As a result, TI received Micron common shares and notes with values of $881 million and $836 million, respectively. In addition to TI's memory assets, Micron received $550 million in cash from TI to facilitate the deployment of Micron's technology throughout the acquired business. In the fourth quarter of 1998, TI made an additional $130 million payment to Micron as part of the contractually required working capital. TI deferred the estimated pretax gain of $127 million on the sale of the memory business until the recovery of the TI-provided financing.

In July 1996, TI acquired Silicon Systems, Inc. (SSi) by means of a stock purchase agreement for $340 million in cash plus the assumption of $217 million of 5-year installment notes and $61 million of current liabilities. Of the aggregate purchase price of $618 million, TI recorded $426 million for the value of assets acquired, $192 million for the value of acquired in-process research and development, and $278 million for the value of liabilities assumed.

F-10

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                              MILLIONS OF DOLLARS
                                                                1998       1997
                                                              --------   --------
Accounts payable............................................   $  510     $  698
Accrued salaries, wages, severance and vacation pay.........      320        405
Other accrued expenses and liabilities......................      752        979
                                                               ------     ------
          Total.............................................   $1,582     $2,082
                                                               ======     ======

DEBT AND LINES OF CREDIT

                                                              MILLIONS OF DOLLARS
LONG-TERM DEBT                                                  1998       1997
--------------                                                --------   --------
6.75% notes due 1999........................................   $  200     $  200
6.875% notes due 2000.......................................      200        200
9.0% notes due 2001.........................................       55         55
6.65% notes, due in installments through 2001...............      159        204
9.25% notes due 2003........................................      104        104
6.125% notes due 2006.......................................      300        300
8.75% notes due 2007........................................       43         43
3.80% to 6.10% lira notes
  (9% swapped for 1.60% U.S. dollar obligation).............      184        190
Other.......................................................       49         57
                                                               ------     ------
                                                                1,294      1,353
Less current portion long-term debt.........................      267         67
                                                               ------     ------
          Total.............................................   $1,027     $1,286
                                                               ======     ======

The coupon rates for the notes due 2006 have been swapped for LIBOR-based variable rates through 2006, for an effective interest rate of approximately 4.6% and 5.1% as of December 31, 1998 and 1997. The lira notes, and related swaps, are due in installments through 2005.

As a result of a 1997 tender offer for any or all of the company's 9.0%, 9.25% and 8.75% notes, an aggregate of $248 million of debt principal was tendered at a cash price of $280 million. This resulted in an extraordinary charge of $22 million in the fourth quarter of 1997, after elimination of deferred issuance costs and recognition of an income tax effect of $12 million.

Interest incurred on loans in 1998, 1997 and 1996 was $85 million, $114 million and $108 million. Of these amounts, $10 million in 1998, $20 million in 1997 and $35 million in 1996 were capitalized as a component of capital asset construction costs. Interest paid on loans (net of amounts capitalized) was $75 million in 1998, $94 million in 1997 and $54 million in 1996.

Aggregate maturities of long-term debt due during the four years subsequent to December 31, 1999, are as follows:

                                                      MILLIONS OF DOLLARS
                                                      -------------------
2000...............................................          $312
2001...............................................           136
2002...............................................            27
2003...............................................           161

The company maintains lines of credit to support commercial paper borrowings and to provide additional liquidity. These lines of credit totaled $669 million at December 31, 1998, and $651 million at

F-11

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1997. Of these amounts, at December 31, 1998 and 1997, $600 million existed to support outstanding commercial paper borrowings or short-term bank loans.

FINANCIAL INSTRUMENTS AND RISK CONCENTRATION

FINANCIAL INSTRUMENTS: In addition to the swaps discussed in the preceding note, as of December 31, 1998, the company had forward currency exchange contracts outstanding of $756 million to hedge net balance sheet exposures (including $161 million to sell yen, $132 million to buy lira and $105 million to buy deutsche marks). At December 31, 1997, the company had forward currency exchange contracts outstanding of $275 million to hedge net balance sheet exposures (including $101 million to buy lira, $73 million to buy deutsche marks and $24 million to buy Singapore dollars). As of December 31, 1998 and 1997, the carrying amounts and current market settlement values of these swaps and forward contracts were not significant. The company uses forward currency exchange contracts, including the lira note currency swaps, to minimize the adverse earnings impact from the effect of exchange rate fluctuations on the company's non-U.S. dollar net balance sheet exposures. The interest rate swaps for the company's notes due 2006 are used to change the characteristics of the interest rate stream on the debt from fixed rates to short-term variable rates in order to achieve a mix of interest rates that, over time, is expected to moderate financing costs. The effect of these interest rate swaps was to reduce interest expense by $3 million and $2 million in 1998 and 1997, and increase interest expense by $2 million in 1996.

In order to minimize its exposure to credit risk, the company limits its counterparties on the forward currency exchange contracts and interest rate swaps to investment-grade rated financial institutions.

As of December 31, 1998 and 1997, the fair value of long-term debt, based on current interest rates, was approximately $1,346 million and $1,390 million, compared with the historical cost amount of $1,294 million and $1,353 million.

RISK CONCENTRATION: Financial instruments that potentially subject the company to concentrations of credit risk are primarily cash investments, accounts receivable and noncurrent investments. The company places its cash investments in investment-grade, short-term debt securities and limits the amount of credit exposure to any one commercial issuer. Concentrations of credit risk with respect to the receivables are limited due to the large number of customers in the company's customer base and their dispersion across different industries and geographic areas. The company maintains an allowance for losses based upon the expected collectibility of accounts receivable. The company's noncurrent investments at year-end 1998 have an aggregate fair value of $2,564 million. The investments are in high-technology companies and are subject to price volatility and other uncertainties. They include a significant concentration of Micron debt (fair value of $978 million) and equity instruments (fair value of $1,463 million). The company adjusts the carrying amounts of the investments to fair value each quarter.

STOCKHOLDERS' EQUITY

The company is authorized to issue 10,000,000 shares of preferred stock. None is currently outstanding.

Each outstanding share of the company's common stock carries one-half of a stock purchase right. Under certain circumstances, each right may be exercised to purchase one one-thousandth of a share of the company's participating cumulative preferred stock for $200. Under certain circumstances following the acquisition of 20% or more of the company's outstanding common stock by an acquiring person (as defined in the rights agreement), each right (other than rights held by an acquiring person) may be exercised to purchase common stock of the company or a successor company with a market value of twice the $200 exercise price. The rights, which are redeemable by the company at 1 cent per right, expire in June 2008.

F-12

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Changes in other comprehensive income are as follows:

                                                             MILLIONS OF DOLLARS
                                                                     EQUITY, DEBT AND
                                                 PENSION LIABILITY   CASH INVESTMENTS
                                                    ADJUSTMENT          ADJUSTMENT      TOTAL
                                                 -----------------   ----------------   -----
Balance, December 31, 1995.....................        $ (45)             $  --         $ (45)
  Annual adjustments...........................            6                 43            49
  Tax effect of above..........................           --                (15)          (15)
                                                       -----              -----         -----
Balance, December 31, 1996.....................          (39)                28           (11)
  Annual adjustments...........................          (24)               (12)          (36)
  Tax effect of above..........................           --                  4             4
  Reclassification of realized transactions,
     net of tax of $6 million..................           --                (10)          (10)
                                                       -----              -----         -----
Balance, December 31, 1997.....................          (63)                10           (53)
  Annual adjustments...........................         (117)               717           600
  Tax effect of above..........................           --               (251)         (251)
                                                       -----              -----         -----
Balance, December 31, 1998.....................        $(180)             $ 476         $ 296
                                                       =====              =====         =====

RESEARCH AND DEVELOPMENT EXPENSE

Research and development expense, which totaled $1,206 million in 1998, $1,536 million in 1997 and $1,181 million in 1996, included a charge in 1998 of $25 million for the value of acquired in-process research and development from two business acquisitions, GO DSP and Spectron. Research and development expense for 1997 included a charge of $461 million for the value of acquired in-process research and development as a result of the acquisition of Amati Communications Corporation (Amati). The company acquired Amati as a result of an all-cash tender offer in fourth quarter 1997 through which approximately 78% of Amati's outstanding common shares were acquired for an aggregate of $306 million. As contractually required, the company then acquired the balance of the Amati shares through a second-step merger transaction for an aggregate of $91 million. In addition to these stock purchase costs, the company incurred approximately $117 million of additional acquisition costs, which included $50 million for the value of TI common stock options contractually required to be issued to replace outstanding Amati employee stock options. Research and development expense for 1996 included a charge of $192 million for the value of acquired in-process research and development in connection with the 1996 acquisition of Silicon Systems, Inc. (SSi) for $618 million. There was essentially no tax offset associated with these acquired in-process research and development charges.

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

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

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

F-13

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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

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

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

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

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

In connection with TI's acquisition of SSi in the third quarter of 1996, TI recorded a charge of $192 million for the value of purchased in-process R&D (purchased R&D) at the acquisition date, based upon the appraised value of the related developmental projects. The Income Approach, which included an analysis of the markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing each purchased R&D project.

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

F-14

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

expanded to include other magnetic optical storage devices that require advanced technology and performance.

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

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

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

OTHER INCOME (EXPENSE) NET

                                                               MILLIONS OF DOLLARS
                                                              1998    1997    1996
                                                              -----   -----   -----
Interest income.............................................  $166    $146     $62
Other income (expense) net..................................   127      46      14
                                                              ----    ----     ---
          Total.............................................  $293    $192     $76
                                                              ====    ====     ===

Other income included gains of $83 million in 1998 from the sale of TI's interest in the TI-Acer joint venture to Acer Corporation and $66 million in 1997 from the sale of three divested activities, primarily software.

STOCK OPTIONS

The company has stock options outstanding to participants under the Texas Instruments 1996 Long-Term Incentive Plan, approved by stockholders on April 18, 1996. Options are also outstanding under the 1988 Stock Option Plan and the Texas Instruments Long-Term Incentive Plan; however, no further options may be granted under these plans. Under all these stockholder-approved plans, unless the options are acquisition-related replacement options, the option price per share may not be less than 100 percent of the fair market value on the date of the grant. Substantially all the options have a 10-year term. Options granted subsequent to 1996 generally vest ratably over four years. Options granted prior to that are fully vested.

Under the 1996 Long-Term Incentive Plan, the company may grant stock options, including incentive stock options; restricted stock and restricted stock units; performance units; and other stock-based awards. The plan provides for the issuance of 74,000,000 shares of the company's common stock (plus shares subject to acquisition-related replacement options); in addition, if any award under the 1988 Stock Option Plan or the Long-Term Incentive Plan terminates, then any unissued shares subject to the terminated award become available for granting awards under the 1996 Long-Term Incentive Plan. No more than 8,000,000 shares of common stock may be awarded as restricted stock, restricted stock units or other stock-based awards under the plan. In 1998, 1997 and 1996, 234,000, 403,000 and 220,056 shares of restricted stock units, which vest over one to five years, were granted (weighted-average award-date value of $25.90, $18.89 and $11.33 per share). In addition, in 1998, 1997 and 1996, zero, 11,400 and 139,624 previously unissued shares were issued as Annual Incentive Plan stock awards (weighted-average award-

F-15

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

date value of zero, $11.47 and $11.64 per share). Compensation expense for restricted stock units and annual stock awards totaled $3.9 million, $3.5 million and $1.6 million in 1998, 1997 and 1996.

The company also has stock options outstanding under the Employee Stock Purchase Plan approved by stockholders in 1997. The plan provides for options to be offered semiannually to all eligible employees in amounts based on a percentage of the employee's compensation. The option price per share may not be less than 85% of the fair market value on the date of grant. If the optionee authorizes and does not cancel payroll deductions that will be equal to or greater than the purchase price, options granted become exercisable seven months, and expire not more than 13 months, from date of grant. There are no options outstanding under the 1988 Employee Stock Option Purchase Plan, the predecessor to the Employee Stock Purchase Plan.

Under the Stock Option Plan for Non-Employee Directors adopted in April 1998, the company will grant stock options to each non-employee director, once a year, in the period beginning January 1999 and extending through 2003. Each grant will be an option to purchase 5,000 shares with an option price equal to fair market value on the date of grant. The option will vest ratably over four years. Stock option transactions during 1998, 1997 and 1996 were as follows:

                                                                       EMPLOYEE
                                           LONG-TERM     WEIGHTED-    STOCK AND     WEIGHTED-
                                           INCENTIVE      AVERAGE    STOCK OPTION    AVERAGE
                                           AND STOCK     EXERCISE      PURCHASE     EXERCISE
                                          OPTION PLANS     PRICE        PLANS         PRICE
                                          ------------   ---------   ------------   ---------
Balance, Dec. 31, 1995..................   31,530,288     $ 7.31       4,534,836     $14.04
  Granted...............................   10,653,500      11.46       3,394,184*     14.07
  Forfeited.............................     (794,956)      6.54      (1,599,636)     14.61
  Expired...............................           --         --              --         --
  Exercised**...........................   (1,738,640)      6.45      (1,544,648)     12.59
                                           ----------     ------      ----------     ------
Balance, Dec. 31, 1996..................   39,650,192       8.48       4,784,736      14.33
  Granted...............................   20,474,320      18.23       2,375,774*     24.15
  Forfeited.............................   (4,730,764)     14.40      (1,526,670)     15.01
  Expired...............................           --         --              --         --
  Exercised**...........................   (7,748,876)      7.01      (2,974,362)     14.48
                                           ----------     ------      ----------     ------
Balance, Dec. 31, 1997..................   47,644,872      12.32       2,659,478      22.36
  Granted...............................   16,128,120      23.94       3,266,190*     22.93
  Granted, acquisition-related***.......    2,464,378      11.07              --         --
  Forfeited.............................   (2,627,974)     20.37        (486,978)     24.01
  Expired...............................           --         --              --         --
  Exercised**...........................   (8,153,214)      8.93      (3,141,042)     22.75
                                           ----------     ------      ----------     ------
Balance, Dec. 31, 1998..................   55,456,182     $15.76       2,297,648     $22.29
                                           ==========     ======      ==========     ======


* Excludes options offered but not accepted.

** Includes previously unissued shares and treasury shares of 7,686,246 and 3,608,010; 10,685,967 and 37,271; and 3,283,288 and zero for 1998, 1997 and 1996.

*** Aggregate value of $52 million for two acquisitions.

In accordance with the terms of APB No. 25, the company records no compensation expense for its stock option awards. As required by SFAS No. 123, the company provides the following disclosure of hypothetical values for these non-acquisition-related awards. The weighted-average grant-date value of options granted during 1998, 1997 and 1996 was estimated to be $11.08, $7.86 and $4.62 under the Long-Term Incentive Plans and the 1988 Stock Option Plan (Long-Term Plans) and $6.67, $6.74 and $3.03 under the Employee Stock and Stock Option Purchase Plans (Employee Plans). These values were

F-16

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1998, 1997 and 1996: expected dividend yields of .71%, .93% and 1.48% (Long-Term Plans) and .74%, .70% and 1.21% (Employee Plans); expected volatility of 43%, 39% and 39%; risk-free interest rates of 5.47%, 5.76% and 5.42% (Long-Term Plans) and 5.32%, 5.69% and 6.15% (Employee Plans); and expected lives of 6 years (Long-Term Plans) and .8 years, .8 years and 1.5 years (Employee Plans). Had compensation expense been recorded based on these hypothetical values, the company's 1998 net income would have been $328 million, or diluted earnings per share of $0.41. A similar computation for 1997 and 1996 would have resulted in net income of $1764 million and $40 million, or diluted earnings per share of $2.22 and $0.06. Because options vest over several years and additional option grants are expected, the effects of these hypothetical calculations are not likely to be representative of similar future calculations.

Summarized information about stock options outstanding under the Long-Term Plans at December 31, 1998, is as follows:

OPTIONS OUTSTANDING                                                      OPTIONS EXERCISABLE
--------------------------------------------------------------------   -----------------------
                                              WEIGHTED-
                                 NUMBER        AVERAGE     WEIGHTED-     NUMBER      WEIGHTED-
RANGE OF                       OUTSTANDING    REMAINING     AVERAGE    EXERCISABLE    AVERAGE
EXERCISE                       AT DEC. 31,   CONTRACTUAL   EXERCISE    AT DEC. 31,   EXERCISE
PRICES                            1998          LIFE         PRICE        1998         PRICE
--------                       -----------   -----------   ---------   -----------   ---------
$   .05 to 13.62.............  23,832,846     5.5 years     $ 8.76     21,389,972     $ 8.52
  15.11 to 24.90.............  27,702,834     8.5            19.92      3,674,860      17.50
  25.18 to 40.54.............   3,920,502     9.3            28.91        257,014      33.11
                               ----------     ---------     ------     ----------     ------
$   .05 to 40.54.............  55,456,182     7.3           $15.76     25,321,846     $10.08
                               ==========     =========     ======     ==========     ======

At December 31, 1998, the stock options outstanding under the Employee Plans have exercise prices of $21.52 and $24.65, depending on the date of grant, and a remaining contractual life of three or nine months. Of the total outstanding options, 560,458 are exercisable at year-end 1998.

At year-end 1998, 43,723,542 shares were available for future grants under the 1996 Long-Term Incentive Plan and 15,036,536 shares under the Employees Stock Purchase Plan. As of year-end 1998, 100,094,936 shares were reserved for issuance under the company's stock option and incentive plans and 17,334,184 shares were reserved for issuance under the Employee Stock Purchase Plan.

In 1997, the company began a stock repurchase program with the goal of neutralizing the dilutive effect of shares to be issued upon the exercise of stock options under the Employee Stock Purchase Plan and Long-Term Plans. Treasury shares acquired in connection with this repurchase program and other stock transactions in 1998, 1997 and 1996 were 4,463,283 shares, 754,511 shares and 7,730 shares. Previously unissued common shares issued under the Long-Term Plans and the Annual Incentive Plan in 1998, 1997 and 1996 were 67,696 shares, 60,348 shares and 196,144 shares. Treasury shares issued under the Texas Instruments Restricted Stock Unit Plan for Directors in 1998, 1997 and 1996 were zero shares, zero shares and 2,334 shares.

RETIREMENT AND INCENTIVE PLANS

The company provides various retirement plans for employees including pension, savings and deferred profit sharing plans. Incentive plans include profit sharing payments and annual performance awards.

U.S. RETIREMENT PLANS: Effective January 1, 1998, for U.S. employees hired on or after December 1, 1997, the company provides a defined contribution plan whereby the company contributes 2% of an employee's earnings, and a matched savings program whereby an employee's contribution, up to 4% of the employee's earnings, is matched by the company at a dollar-per-dollar rate. The contributions may be invested in several investment funds including TI common stock. During a selection period in 1997,

F-17

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

employees employed prior to December 1, 1997, irrevocably elected whether to choose this plan or remain in the savings and defined benefit programs described below. Approximately 36% chose this plan.

For U.S. employees hired prior to December 1, 1997, the company provides a matched savings program whereby an employee's contribution, up to 4% of the employee's earnings (subject to statutory limitations), is matched by the company at the rate of 50 cents per dollar. Available investments are the same as above. Also provided is a defined benefit plan with benefits based on years of service and employee's compensation. The plan is a career-average-pay plan which has been amended periodically in the past to produce approximately the same results as a final-pay type plan. The board of directors of the company has expressed an intent to make such amendments in the future, circumstances permitting, and the expected effects of such amendments have been considered in calculating U.S. pension expense.

Certain of the profit sharing plans worldwide provide that, depending on the individual plan, a portion of the profit sharing earned by employees is contributed to a deferred plan. For U.S. employees, 50% of profit sharing amounts are deferred. Several investment options are available, including TI common stock. While the board of directors of the company has authorized the issuance of 18,467,672 shares of previously unissued TI common shares for deferred profit sharing and savings plans worldwide, none have been issued in the three years ended December 31, 1998. Instead, the trustees of these plans worldwide have purchased outstanding TI common shares: 7,506,168 shares in 1998, 7,070,942 shares in 1997 and 6,247,810 shares in 1996.

The company's aggregate expense for U.S. employees under the defined contribution, deferred profit sharing and matched savings plans was $56 million in 1998, $55 million in 1997 and $17 million in 1996.

The company's U.S. employees are currently eligible to receive, during retirement, specified company-paid medical benefits. The plan is contributory and premiums are adjusted annually. For employees retiring on or after January 5, 1993, the company has specified a maximum annual amount per retiree, based on years of service, that it will pay toward retiree medical premiums. For employees who retired prior to that date, the company maintains a consistent level of cost sharing between the company and the retiree. Effective January 1, 1998, new employees are eligible for this benefit when they reach 20 years of service, regardless of age. For a 15-year transition period, current employees qualify for eligibility under either the 20-year rule or the previous requirement, which was based upon retirement eligibility under the defined benefit pension plan. Coverage eligibility under the 20-year rule is only available at termination, i.e., no subsequent election to participate is allowable.

Expense of the U.S. defined benefit and retiree health care benefit plans was as follows:

                                                                 MILLIONS OF DOLLARS
                                                                                 RETIREE
                                                        DEFINED BENEFIT        HEALTH CARE
                                                       ------------------   ------------------
                                                       1998   1997   1996   1998   1997   1996
                                                       ----   ----   ----   ----   ----   ----
Service cost.........................................  $ 36   $ 36   $ 40   $ 3    $ 3    $ 4
Interest cost........................................    48     48     51    21     20     22
Expected return on plan assets.......................   (38)   (33)   (41)   --     --     --
Amortization of prior service cost...................     2      3      3    --     --     --
Amortization of transition obligation................    (5)    (5)    (8)   --     --     --
Recognized net actuarial loss........................     1      2      3    --     --     --
                                                       ----   ----   ----   ---    ---    ---
          Total......................................  $ 44   $ 51   $ 48   $24    $23    $26
                                                       ====   ====   ====   ===    ===    ===

Settlement and curtailment gains (losses) of the U.S. defined benefit plan recognized in 1998, 1997 and 1996 were zero and $(6) million; $3 million and $18 million; and $5 million and zero. For the retiree health care benefit plan they were zero and $1 million; zero and $1 million; and zero and zero.

F-18

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Obligation data for the U.S. defined benefit and retiree health care benefit plans and asset data for the U.S. defined benefit plan at December 31 were as follows:

                                                                    MILLIONS OF DOLLARS
                                                                                   RETIREE
                                                              DEFINED BENEFIT    HEALTH CARE
                                                              ---------------   -------------
                                                               1998     1997    1998    1997
                                                              ------   ------   -----   -----
Change in benefit obligation
Benefit obligation at beginning of year.....................  $ 688    $ 819    $ 319   $ 312
  Service cost..............................................     36       36        3       3
  Interest cost.............................................     48       48       21      20
  Plan participant's contributions..........................     --       --        6       5
  Benefits paid.............................................    (38)    (202)     (25)    (22)
  Actuarial loss............................................     50       36       22      --
  Settlements...............................................    (84)     (28)      --      --
  Curtailments..............................................      9      (24)       6       1
  Special termination benefit...............................      9        3       --      --
  Divestiture...............................................    (11)      --       --      --
                                                              -----    -----    -----   -----
Benefit obligation at end of year...........................    707      688      352     319
                                                              -----    -----    -----   -----
Change in plan assets
Fair value of plan assets at beginning of year..............    543      611
  Actual return on plan assets..............................     88      114
  Employer contribution.....................................     26       42
  Benefits paid.............................................    (28)    (196)
  Settlements...............................................    (84)     (28)
  Divestiture...............................................    (14)      --
                                                              -----    -----
Fair value of plan assets at end of year....................    531      543
                                                              -----    -----
Funded status...............................................   (176)    (145)    (352)   (319)
  Unrecognized net actuarial (gain).........................    (29)     (29)      (5)    (33)
  Unrecognized prior service cost...........................      6        8       (2)     (2)
  Unrecognized transition obligation........................    (10)     (16)      --      --
                                                              -----    -----    -----   -----
Accrued retirement at December 31...........................   (209)    (182)    (359)   (354)
Less current portion........................................     27       40       23      19
                                                              -----    -----    -----   -----
Accrued U.S. retirement costs...............................  $(182)   $(142)   $(336)  $(335)
                                                              =====    =====    =====   =====

The U.S. defined benefit and retiree health care obligations for 1998 and 1997 were determined using assumed discount rates of 6.75% and 7.0%. The assumed average long-term pay progression rate was 4.25%. The assumed long-term rate of return on plan assets was 9.0%. The retiree health care benefit obligation was determined using health care cost trend rates of 6.0% for 1999 decreasing to 5.0% by 2000. Increasing (decreasing) the health care cost trend rates by 1% would have increased (decreased) the retiree health care benefit obligation at December 31, 1998, by $15 million/$(15) million and 1998 plan expense by $1 million/ $(1) million.

NON-U.S. RETIREMENT PLANS: Retirement coverage for non-U.S. employees of the company is provided, to the extent deemed appropriate, through separate plans. Defined retirement benefits are based on years of service and employee's compensation, generally during a fixed number of years immediately prior to retirement.

Certain non-U.S. locations provide for deferral of profit sharing amounts with contributions generally invested in TI common stock. The related expense for these contributions was $3 million in 1998, $6 million in 1997 and zero in 1996.

F-19

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Expense of the non-U.S. defined benefit plans was as follows:

                                                               MILLIONS OF DOLLARS
                                                              1998    1997    1996
                                                              -----   -----   -----
Service cost................................................  $ 53    $ 59    $ 64
Interest cost...............................................    31      35      34
Expected return on plan assets..............................   (40)    (38)    (35)
Amortization of prior service cost..........................    (1)      1       1
Amortization of transition obligation.......................     2       2       2
Recognized net actuarial loss...............................    12       9      10
                                                              ----    ----    ----
          Total.............................................  $ 57    $ 68    $ 76
                                                              ====    ====    ====

Settlement and curtailment gains (losses) of the non-U.S. defined benefit plans recognized in 1998 and 1997 were $(5) million and zero; and $(3) million and zero. There were no such items in 1996.

Obligation and asset data for the non-U.S. defined benefit plans at September 30 were as follows:

                                                              MILLIONS OF DOLLARS
                                                                1998        1997
                                                              --------    --------
Change in benefit obligation
Benefit obligation at beginning of year.....................   $ 999       $ 940
  Service cost..............................................      53          59
  Interest cost.............................................      31          35
  Benefits paid.............................................     (20)        (19)
  Actuarial gain............................................     (83)        (16)
                                                               -----       -----
Benefit obligation at end of year...........................     980         999
                                                               -----       -----
Change in plan assets
Fair value of plan assets at beginning of year..............     543         500
  Actual return on plan assets..............................      21          59
  Employer contribution.....................................      36          38
  Benefits paid.............................................     (20)        (19)
  Actuarial gain............................................     (40)        (35)
                                                               -----       -----
Fair value of plan assets at end of year....................     540         543
                                                               -----       -----
Funded status...............................................    (440)       (456)
  Unrecognized net actuarial loss...........................     250         252
  Unrecognized prior service cost...........................       8           9
  Unrecognized transition obligation........................       9          13
  Adjustments from Sept. 30 to Dec. 31......................      (4)          4
                                                               -----       -----
          Net non-U.S. amount recognized....................   $(177)      $(178)
                                                               =====       =====
Amounts recognized in the balance sheet consist of:
  Accrued retirement, current...............................   $  (2)      $  (3)
  Accrued retirement, noncurrent............................    (377)       (254)
  Prepaid benefit cost......................................      14          10
  Intangible asset..........................................       8           6
  Accumulated other comprehensive income....................     180          63
                                                               -----       -----
          Total.............................................   $(177)      $(178)
                                                               =====       =====

The range of assumptions used for the non-U.S. defined benefit plans reflects the different economic environments within the various countries.

F-20

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The defined benefit obligations were determined as of September 30 using a range of assumed discount rates of 2.5% to 7.0% and a range of assumed average long-term pay progression rates of 3.0% to 6.0%. The range of assumed long-term rates of return on plan assets was 7.0% to 8.0%. Accrued retirement at September 30, 1998 and 1997 includes projected benefit obligations of $841 million and $883 million and accumulated benefit obligations of $630 million and $636 million, versus plan assets of $395 million and $408 million, for three plans whose obligations exceed their assets.

RESTRUCTURING ACTIONS

In the second quarter of 1998, the company announced that, as a result of the various business divestitures over the past several years, the pending sale of its memory business and weakness in the current semiconductor market environment, it was implementing a severance/manufacturing efficiency program in order to more closely match the size and cost of its support functions with the company's overall size and to further combine manufacturing resources for more efficient operations. The program, which primarily affected the company's corporate activities and semiconductor business, included the elimination of 3,441 jobs around the world through voluntary programs, attrition, outsourcing and layoffs, as well as the closing of several facilities. As a result, the company took a pretax charge of $219 million in the second quarter, of which $126 million was included in marketing, general and administrative expense and $93 million in cost of revenues. Of the $219 million charge, $161 million was for severance, $41 million for asset write-downs and $17 million for vendor cancellation and lease charges. Of the $41 million for asset write-downs, $25 million was for U.S. semiconductor inventories and $16 million was for fixed assets, primarily accelerated depreciation on assets phased out during 1998 in connection with the winding down of production at a semiconductor manufacturing facility in Singapore. The fixed assets were subsequently sold for scrap at a nominal value. Of the $17 million for vendor cancellation and lease charges, $15 million was for required vendor fees for cancellation of purchase contracts for chemicals, supplies and equipment as a result of a U.S. facility shutdown. At year-end 1998, the program had essentially been completed, with most severance costs paid except for $49 million, which will primarily be paid in 1999. Of the 3,441 jobs, 3,260 had been eliminated, and 181 will be eliminated in 1999.

In the third quarter of 1998, the company recorded a $14 million charge for additional depreciation on fixed assets primarily located in the semiconductor manufacturing facility in Singapore. This action was taken in connection with the severance/manufacturing efficiency program announced during the second quarter of 1998. This asset write down charge was included in cost of revenues.

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

In the first quarter of 1997, the company sold its mobile computing business and terminated its digital imaging printing development program. As a result of these divestitures, the company took a first-quarter pretax charge of $56 million, of which $28 million was included in cost of revenues and $28 million in marketing, general and administrative expense. Of this $56 million charge, $27 million was for severance for involuntary reductions worldwide. These severance actions were essentially completed by the end of the

F-21

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

quarter and affected approximately 1,045 employees. The balance of $29 million was for other costs associated with the business sale and program termination, including vendor cancellation and lease charges. Essentially all costs were paid in 1998. In the second quarter of 1997, TI sold several activities, principally software, for a pre-tax gain of $66 million, after transaction costs. These transaction costs totaled $54 million and included severance of $17 million for 372 employees, who left TI within three months of the related divestitures, $24 million for vendor and warranty obligations, which extend through 2002, $4 million for professional fees, and $9 million for various other costs. In the fourth quarter of 1997, the company took a pretax charge of $42 million, of which $30 million was included in cost of revenues and $12 million in marketing, general and administrative expense, primarily for severance costs related to cost-reduction actions by the materials & controls business. These actions, which are expected to be completed in first-quarter 1999, affected approximately 260 employees. The terminated employees were in plants located in Holland, Italy, Canada and Michigan. Costs of $5 million were paid by year-end 1998. Remaining severance is to be paid in installments through 2002.

In the fourth quarter of 1996, the company took a pretax charge of $208 million, of which $169 million was included in cost of revenues and $39 million was included in marketing, general and administrative expense. Of the $208 million, $91 million was for severance for employment reduction actions in the United States and selected reductions worldwide. These actions, which primarily involved the semiconductor business as well as divested activities, were essentially completed by year-end 1996 and affected approximately 2,600 employees. Of the severance cost of $91 million, $34 million was paid in 1996 and $57 million was paid in 1997. The balance of this charge, $117 million, was for vendor cancellation and other cash-related costs of $47 million and asset write-downs of $70 million on several product lines, primarily mobile computing, an operation divested in first-quarter 1997. The asset write-downs were to adjust inventory and fixed assets to actual sale value. Of the $70 million asset write-down charge, $54 million was for mobile computing.

With respect to this $54 million charge, $47 million was for inventory and $7 million was for fixed assets. The balance of $16 million included a $6 million charge against operating assets for the impact of the expected first quarter 1997 termination of TI's digital imaging printing development program. The remainder, $10 million, was to write down the operating assets of TI's Telecom business, which was held for sale.

F-22

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Set forth below is a reconciliation of individual restructuring accruals (in millions of dollars).

                                                                                     YEAR OF CHARGE
                                                      ----------------------------------------------------------------------------
                                    BALANCE, PRIOR                1996                                    1997
                                   ACTIONS -- GRANT   -----------------------------   --------------------------------------------
                                      REPAYMENT        EMPLOYMENT                       DIVESTITURE                    RESERVES
                                      AND LEASE       REDUCTIONS --                         OF          M&C COST       AGAINST
                                      OBLIGATION      SC & DIVESTED   MCB/DIPD/TELE   MCB/TERMINATION   REDUCTION      GAINS ON
DESCRIPTION*               TOTAL        COSTS          ACTIVITIES      WRITE-DOWNS        OF DIPD        ACTION     BUSINESS SALES
------------               -----   ----------------   -------------   -------------   ---------------   ---------   --------------
BALANCE, DECEMBER 31,
 1995....................  $ 15          $15
CHARGES:
Severance................    91                           $ 91
Vendor and warranty
 obligations.............    47                                            $47
Various charges..........     7                                              7
Asset write-downs........    70                                             70
DISPOSITIONS:
Severance payments.......   (34)                           (34)
Various payments.........    (7)                                            (7)
Non-cash write-downs of
 assets..................   (70)                                           (70)
Adjustments-net reversal
 to income...............    (3)          (3)
                           -----         ---              ----             ---
BALANCE, DECEMBER 31,
 1996....................   116           12                57              47
                           -----         ---              ----             ---
CHARGES:
Severance................    73                                                             $27            $29           $17
Vendor and warranty
 obligations.............    42                                                              18                           24
Transaction costs,
 including professional
 fees....................     4                                                                                            4
Various charges..........    33                                                              11             13             9
DISPOSITIONS:
Severance payments.......   (88)                           (57)                             (24)                          (7)
Vendor and warranty
 obligations.............   (16)                                                            (16)
Transaction cost
 payments................    (2)                                                                                          (2)
Various payments.........   (10)                                                            (10)
Adjustments-net reversal
 to income...............    --                                                               4                           (4)
                           -----         ---              ----             ---              ---            ---           ---
BALANCE, DECEMBER 31,
 1997....................   152           12                --              47               10             42            41
                           -----         ---              ----             ---              ---            ---           ---
CHARGES:
Severance................   196
Vendor and warranty
 obligations.............    17
Grant Repayment..........    15
Cash payment owed
 to buyer................    20
Various charges..........     7
Asset write-downs........    57
DISPOSITIONS:
Severance payments.......  (140)                                                             (1)            (5)           (5)
Vendor and warranty
 obligations.............   (66)                                           (47)              (1)                          (1)
Cash payment to buyer....   (20)
Transaction cost
 payments................    (2)                                                                                          (2)
Non-cash write-down of
 assets..................   (57)
Adjustments-net reversal
 to income...............   (16)         (12)                                                 8            (16)           (9)
                           -----         ---              ----             ---              ---            ---           ---
BALANCE, DECEMBER 31,
 1998....................  $163          $--              $ --             $--              $16            $21           $24
                           =====         ===              ====             ===              ===            ===           ===


                                           1998
                           -------------------------------------
                                                   SC OPERATION
                           SC AND     SINGAPORE    CLOSING & M&C
                            CORP.     AND U.S.        SALE OF
DESCRIPTION*               ACTIONS   WRITE-DOWNS     OPERATION
------------               -------   -----------   -------------
BALANCE, DECEMBER 31,
 1995....................
CHARGES:
Severance................
Vendor and warranty
 obligations.............
Various charges..........
Asset write-downs........
DISPOSITIONS:
Severance payments.......
Various payments.........
Non-cash write-downs of
 assets..................
Adjustments-net reversal
 to income...............
BALANCE, DECEMBER 31,
 1996....................
CHARGES:
Severance................
Vendor and warranty
 obligations.............
Transaction costs,
 including professional
 fees....................
Various charges..........
DISPOSITIONS:
Severance payments.......
Vendor and warranty
 obligations.............
Transaction cost
 payments................
Various payments.........
Adjustments-net reversal
 to income...............
BALANCE, DECEMBER 31,
 1997....................
CHARGES:
Severance................   $ 161                      $ 35
Vendor and warranty
 obligations.............      17
Grant Repayment..........                                15
Cash payment owed
 to buyer................                                20
Various charges..........      --                         7
Asset write-downs........               $ 55              2
DISPOSITIONS:
Severance payments.......    (110)                      (19)
Vendor and warranty
 obligations.............     (17)
Cash payment to buyer....                               (20)
Transaction cost
 payments................
Non-cash write-down of
 assets..................                (55)            (2)
Adjustments-net reversal
 to income...............      (2)                       15**
                            -----       ----           ----
BALANCE, DECEMBER 31,
 1998....................   $  49       $ --           $ 53
                            =====       ====           ====


* Abbreviations SC = Semiconductor Business MCB = Mobile Computing Business DIPD = Digital Imaging Printing Development Program TELE = Telecommunications Business M&C = Materials and Controls Business Corp. = Corporate Division

** Includes the effect of an $8 million reclassification of semiconductor-related grant repayment obligations from the "Balance, prior actions" column and an $8 million reclassification of M&C-related liabilities, primarily for grant repayment obligations, from the "1997 M&C cost reduction action" column. These reclassifications did not affect income.

F-23

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA

TI develops, manufactures and sells a variety of products used in the commercial electronic and electrical equipment industry, primarily for industrial and consumer markets. The company's principal businesses are based on TI's broad semiconductor technology and application of this technology to digital solutions for the networked society.

TI HAS THREE PRINCIPAL BUSINESSES: Semiconductor, Materials & Controls and Educational & Productivity Solutions. Each of these is a business segment, with its respective financial performance detailed in this report.

Semiconductor consists of digital signal processors, analog chips, standard logic, application-specific integrated circuits, reduced instruction-set computing microprocessors and microcontrollers. These semiconductors are sold primarily to original-equipment manufacturers and through distributors.

Materials & Controls consists primarily of electrical and electronic control devices, electronic connectors and clad metals. They are sold primarily to original-equipment manufacturers and through distributors.

Educational & Productivity Solutions, which includes educational and graphing calculators, are marketed primarily through retailers and to schools through instructional dealers.

Operating profits of the three principal businesses include the effects of profit sharing and exclude the effects of special charges and gains. The results for semiconductor include the effects of all royalty revenues from semiconductor-related cross-license agreements. Business assets are the owned or allocated assets used by each business.

Included in corporate activities are general corporate expenses, elimination of intersegment transactions (which are generally intended to approximate market prices), results for TI's emerging digital imaging operation and royalty revenues from computer-related cross-license agreements. Assets of corporate activities include unallocated cash, short-term investments, noncurrent investments and deferred income taxes.

Divested activities include the historical operating results and assets of memory (sold in 1998), mobile computing and software (both sold in 1997), custom manufacturing services and printers (both sold in 1996) and other smaller divestitures.

BUSINESS SEGMENT NET REVENUES

                                                                MILLIONS OF DOLLARS
                                                               1998     1997     1996
                                                              ------   ------   ------
Semiconductor
  Trade.....................................................  $6,267   $6,490   $5,340
  Intersegment..............................................      23       24       45
                                                              ------   ------   ------
                                                               6,290    6,514    5,385
                                                              ------   ------   ------
Materials & Controls
  Trade.....................................................     943      950      887
  Intersegment..............................................       1        4        3
                                                              ------   ------   ------
                                                                 944      954      890
                                                              ------   ------   ------
Educational & Productivity Solutions
  Trade.....................................................     456      447      422
Corporate activities........................................     140      154       91
Divested activities.........................................     630    1,681    3,152
                                                              ------   ------   ------
          Total.............................................  $8,460   $9,750   $9,940
                                                              ======   ======   ======

F-24

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

BUSINESS SEGMENT PROFIT (LOSS)

                                                                MILLIONS OF DOLLARS
                                                               1998     1997     1996
                                                              ------   ------   ------
Semiconductor...............................................  $1,439   $1,546   $1,012
Materials & Controls........................................     142      123       90
Educational & Productivity Solutions........................      76       59       56
Corporate activities........................................    (235)    (273)    (312)
Special charges and gains...................................    (466)    (532)    (400)
Interest on loans/other income (expense) net, excluding 1998
  and 1997 net gains of $59 million and $66 million included
  above.....................................................     159       32        3
Divested activities.........................................    (498)    (242)    (472)
                                                              ------   ------   ------
Income (loss) from continuing operations before provision
  for income taxes and extraordinary item...................  $  617   $  713   $  (23)
                                                              ======   ======   ======

Details of special charges and gains are as follows:

                                                               MILLIONS OF DOLLARS
                                                              1998    1997    1996
                                                              -----   -----   -----
Severance/manufacturing efficiency program..................  $(233)  $  --   $  --
Closing of a semiconductor operation and sale of a materials
  & controls operation, of which $(24) million was included
  in other income (expense) net.............................    (72)     --      --
Discontinuance of TI-Hitachi joint venture..................   (219)     --      --
Sale of interest in TI-Acer joint venture...................     83      --      --
Acquired in-process R&D charge..............................    (25)   (461)   (192)
Severance and other costs, primarily from the divestiture of
  mobile computing..........................................     --     (56)     --
Other income: gain on sale of three divested activities,
  primarily software........................................     --      66      --
Termination of Thailand joint venture agreements............     --     (44)     --
Severance and other costs, primarily for materials &
  controls cost reductions..................................     --     (42)     --
Asset write-downs and other costs, primarily mobile
  computing.................................................     --      --    (117)
Severance costs for employment reductions, primarily for
  semiconductor and divested activities.....................     --      --     (91)
Other.......................................................     --       5      --
                                                              -----   -----   -----
          Total.............................................  $(466)  $(532)  $(400)
                                                              =====   =====   =====

BUSINESS SEGMENT ASSETS

                                                                 MILLIONS OF DOLLARS
                                                               1998      1997      1996
                                                              -------   -------   ------
Semiconductor...............................................  $ 4,710   $ 4,798   $4,763
Materials & Controls........................................      397       391      380
Educational & Productivity Solutions........................      117       151      141
Corporate activities........................................    5,932     4,309    2,197
Divested activities.........................................       94     1,200    1,350
Net assets of discontinued operations.......................       --        --      529
                                                              -------   -------   ------
          Total.............................................  $11,250   $10,849   $9,360
                                                              =======   =======   ======

F-25

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

BUSINESS SEGMENT PROPERTY, PLANT AND EQUIPMENT

                                                               MILLIONS OF DOLLARS
DEPRECIATION                                                   1998     1997    1996
------------                                                  ------   ------   ----
Semiconductor...............................................  $  913   $  853   $655
Materials & Controls........................................      47       46     41
Educational & Productivity Solutions........................       1        1     --
Corporate and other activities..............................      74       58     56
Divested activities.........................................     134      151    152
                                                              ------   ------   ----
          Total.............................................  $1,169   $1,109   $904
                                                              ======   ======   ====

                                                                MILLIONS OF DOLLARS
ADDITIONS                                                      1998     1997     1996
---------                                                     ------   ------   ------
Semiconductor...............................................  $  731   $  858   $1,633
Materials & Controls........................................      49       49       53
Educational & Productivity Solutions........................       1        1       --
Corporate activities........................................      32      147      225
Divested activities.........................................     218      183      152
                                                              ------   ------   ------
          Total.............................................  $1,031   $1,238   $2,063
                                                              ======   ======   ======

The following geographic area data include trade revenues, based on product shipment destination and royalty payor location, and property, plant and equipment based on physical location:

GEOGRAPHIC AREA NET TRADE REVENUES

                                                                MILLIONS OF DOLLARS
                                                               1998     1997     1996
                                                              ------   ------   ------
United States...............................................  $2,722   $3,216   $3,548
Japan.......................................................   1,619    1,971    1,832
Singapore...................................................     798    1,110      866
Rest of world...............................................   3,321    3,453    3,694
                                                              ------   ------   ------
          Total.............................................  $8,460   $9,750   $9,940
                                                              ======   ======   ======

GEOGRAPHIC AREA PROPERTY, PLANT AND EQUIPMENT (NET)

                                                                MILLIONS OF DOLLARS
                                                               1998     1997     1996
                                                              ------   ------   ------
United States...............................................  $2,440   $2,640   $2,619
Japan.......................................................     417      478      519
Rest of world...............................................     516    1,062    1,024
                                                              ------   ------   ------
          Total.............................................  $3,373   $4,180   $4,162
                                                              ======   ======   ======

F-26

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

Income (Loss) from Continuing Operations before Provision for Income Taxes and Extraordinary Item.

                                                                MILLIONS OF DOLLARS
                                                              U.S.    NON-U.S.   TOTAL
                                                              -----   --------   -----
1998........................................................  $ 201     $416     $617
                                                              -----     ----     ----
1997........................................................     93      620      713
                                                              -----     ----     ----
1996........................................................   (529)     506      (23)
                                                              -----     ----     ----

PROVISION (CREDIT) FOR INCOME TAXES

                                                                    MILLIONS OF DOLLARS
                                                        U.S. FEDERAL   NON-U.S.   U.S. STATE   TOTAL
                                                        ------------   --------   ----------   -----
1998
  Current.............................................     $   4         $263        $(7)      $260
  Deferred............................................       (13)         (36)        (1)       (50)
                                                           -----         ----        ---       ----
          Total.......................................     $  (9)        $227        $(8)      $210
                                                           =====         ====        ===       ====
1997
  Current.............................................     $ 112         $286        $ 4       $402
  Deferred............................................        51          (44)         2          9
                                                           -----         ----        ---       ----
          Total.......................................     $ 163         $242        $ 6       $411
                                                           =====         ====        ===       ====
1996
  Current.............................................     $(125)        $202        $(3)      $ 74
  Deferred............................................       (44)          (6)        (1)       (51)
                                                           -----         ----        ---       ----
          Total.......................................     $(169)        $196        $(4)      $ 23
                                                           =====         ====        ===       ====

Principal reconciling items from income tax computed at the statutory federal rate follow.

                                                               MILLIONS OF DOLLARS
                                                              1998    1997    1996
                                                              -----   -----   -----
Computed tax at statutory rate..............................  $216    $249    $ (8)
Effect of acquired in-process R&D...........................     4     161      67
Effect of non-U.S. rates....................................    76     (11)     (3)
Research and experimentation tax credits....................   (20)    (30)    (11)
Effect of U.S. state income taxes...........................   (14)      4      (3)
Effect of joint venture costs...............................   (48)     31      12
Other.......................................................    (4)      7     (31)
                                                              ----    ----    ----
          Total provision for income taxes..................  $210    $411    $ 23
                                                              ====    ====    ====

Included in the effect of non-U.S. rates for 1996 is a $4 million benefit from tax loss carryforward utilization reduced by certain non-U.S. taxes and losses for which no benefit was recognized. Provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend payments from such companies are expected to result in additional tax liability. The remaining undistributed earnings (approximately $620 million at December 31, 1998) have been indefinitely reinvested; therefore, no provision has been made for taxes due upon remittance of these earnings. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.

F-27

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The primary components of deferred income tax assets and liabilities at December 31 were as follows:

                                                              MILLIONS OF DOLLARS
                                                               1998         1997
                                                              -------      -------
Deferred income tax assets:
  Accrued retirement costs (pension and retiree health
     care)..................................................   $ 322        $ 221
  Inventories and related reserves..........................     242          216
  Accrued expenses..........................................     251          195
  Loss and credit carryforwards.............................      49           80
  Other.....................................................      59          210
                                                               -----        -----
                                                                 923          922
                                                               -----        -----
Less valuation allowance....................................    (173)        (121)
                                                               -----        -----
                                                                 750          801
                                                               -----        -----
Deferred income tax liabilities:
  Investments...............................................    (256)          (5)
  Property, plant and equipment.............................    (104)        (165)
  International earnings....................................     (19)         (38)
  Other.....................................................    (146)        (170)
                                                               -----        -----
                                                                (525)        (378)
                                                               -----        -----
Net deferred income tax asset...............................   $ 225        $ 423
                                                               =====        =====

As of December 31, 1998 and 1997, the net deferred income tax asset of $225 million and $423 million was presented in the balance sheet, based on tax jurisdiction, as deferred income tax assets of $606 million and $711 million and deferred income tax liabilities of $381 million and $288 million. The valuation allowance shown above reflects the company's ongoing assessment regarding the realizability of certain non-U.S. deferred income tax assets. The balance of the deferred income tax assets is considered realizable based on carryback potential, existing taxable temporary differences and expectation of future income levels comparable to recent results. Such future income levels are not assured because of the nature of the company's businesses, which are generally characterized by rapidly changing technology and intense competition.

The company has aggregate U.S. and non-U.S. tax loss carryforwards of approximately $125 million. Of this amount, $117 million expires through the year 2013, and $8 million of the loss carryforwards has no expiration.

Income taxes paid were $162 million, $1,145 million and $240 million for 1998, 1997 and 1996.

RENTAL EXPENSE AND LEASE COMMITMENTS

Rental and lease expense was $153 million in 1998, $168 million in 1997 and $175 million in 1996. The company conducts certain operations in leased facilities and also leases a portion of its data processing and other equipment. The lease agreements frequently include purchase and renewal provisions and require the company to pay taxes, insurance and maintenance costs.

F-28

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1998, the company was committed under noncancelable leases with minimum rentals in succeeding years as follows:

                                                      MILLIONS OF DOLLARS
                                                      -------------------
1999................................................         $ 86
2000................................................           61
2001................................................           34
2002................................................           27
2003................................................           26
Thereafter..........................................          129

DIVESTITURES

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

In the second quarter of 1998, the company sold its interest in the TI-Acer DRAM manufacturing joint venture to Acer Corporation for $120 million in cash. This sale resulted in a pretax gain of $83 million. On September 30, 1998, TI sold its memory business, including its remaining DRAM manufacturing joint venture interests in TECH Semiconductor Singapore (TECH) and KTI Semiconductor in Japan to Micron Technology, Inc. (Micron). As a result, TI received 28,933,092 Micron common shares, a $740 million note convertible into an additional 12,333,358 Micron common shares and a $210 million subordinated note. The $740 million face amount Micron convertible note contains an embedded call option that allows TI to convert the note, at any time prior to its 2005 maturity, into 12,333,358 Micron common shares, at an effective conversion price equal to $60 per common share. The market value of the seven year, 6.5% convertible and subordinated note was approximately $836 million at closing, with an average imputed interest rate of 8.7%. In addition to TI's memory assets, Micron received $550 million in cash from TI to facilitate the deployment of Micron's technology throughout the acquired business. In the fourth quarter of 1998, TI made an additional $130 million payment to Micron as part of the contractually required working capital. TI deferred the estimated pretax gain of $127 million on the sale until the recovery of the TI-provided financing. The deferred gain is subject to change to the extent actual transaction costs vary from estimates. In connection with the sale, TI agreed to guarantee the payment obligations of TECH under a newly syndicated $450 million principal amount credit facility for debt maturing 2002. As of year-end 1998, TECH had borrowed $240 million under the facility. As a result of the guarantee, TI was granted a security interest in TECH's assets. In addition, the guarantee is partially offset by certain contingent funding obligations of TECH's stockholders. In another matter, approximately $300 million of grants from the Italian government to TI's former memory operations in Italy are being reviewed in the ordinary course by government auditors. TI understands that these auditors are questioning whether some of the grants were applied to purposes outside the scope of the grants. TI's deferred gain on the sale may be reduced to the extent that any grants are determined to have been misapplied. Also, TI understands that an Italian prosecutor is conducting a criminal investigation concerning a portion of the grants relating to specified research and development activities. TI believes that the grants were obtained and used in compliance with applicable law and contractual obligations.

In July, 1997 the company sold its Defense Systems and Electronics business (DSE) to Raytheon Company for $2.95 billion in cash. The net gain on the sale of this discontinued operation, after income taxes of $876 million, was $1,473 million. The consolidated financial statements of TI present the DSE

F-29

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

operations as discontinued operations. Summarized results of discontinued operations prior to the close were as follows:

                                                              MILLIONS OF DOLLARS
                                                               1997         1996
                                                              ------      --------
Net revenues................................................   $812        $1,773
Income before provision for income taxes....................     84           175
Provision for income taxes..................................     32            66
Income from discontinued operations.........................     52           109

TI provided various ongoing services to DSE including, but not limited to, facilities management, data processing, security, payroll and employee benefits administration, insurance administration and duplicating and telecommunications services. Their inclusion in discontinued operations was based upon TI's intercorporate allocation procedures for such services. The allocation basis of these expenses and all other central operating costs was first on the basis of direct usage when identifiable, with the remainder allocated among DSE and other TI businesses on the basis of their respective revenues, head count or other measures. These expenses allocated to DSE totaled $76 million in 1997 and $163 million in 1996. TI has agreements to receive payments from Raytheon for continuing to provide certain of these services on an ongoing basis and others on a transition basis to DSE.

F-30

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED QUARTERLY FINANCIAL DATA

                                                           MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS
                                                             1ST          2ND          3RD          4TH
                                                          ---------    ---------    ---------    ---------
1998
Net revenues............................................   $2,187       $2,167       $2,113       $1,993
Gross profit............................................      670          725          791          880
Profit (loss) from operations...........................      (22)         (38)         189          270
                                                           ------       ------       ------       ------
Net income..............................................   $   11       $   52       $  155       $  189
                                                           ======       ======       ======       ======
Diluted earnings per common share.......................   $  .01       $  .07       $  .19       $  .23
                                                           ======       ======       ======       ======
Basic earnings per common share.........................   $  .01       $  .07       $  .20       $  .24
                                                           ======       ======       ======       ======
1997
Net revenues............................................   $2,263       $2,559       $2,500       $2,428
Gross profit............................................      791          962          982          948
Profit (loss) from operations...........................      171          287          358         (201)
Income (loss) from continuing operations before
  extraordinary item....................................      102          224          239         (263)
Discontinued operations:
  Income from operations................................       27           25           --           --
  Gain on sale..........................................       --           --        1,473           --
Extraordinary item......................................       --           --           --          (22)
                                                           ------       ------       ------       ------
Net income (loss).......................................   $  129       $  249       $1,712       $ (285)
                                                           ======       ======       ======       ======
Diluted earnings (loss) per common share:
  Continuing operations before extraordinary item.......   $  .13       $  .28       $  .30       $ (.34)
  Discontinued operations:
     Income from operations.............................      .03          .03           --           --
     Gain on sale.......................................       --           --         1.84           --
     Extraordinary item.................................       --           --           --         (.03)
                                                           ------       ------       ------       ------
     Net income (loss)..................................   $  .16       $  .31       $ 2.14       $ (.37)
                                                           ======       ======       ======       ======
Basic earnings (loss) per common share:
  Continuing operations before extraordinary item.......   $  .13       $  .29       $  .31       $ (.34)
  Discontinued operations:
     Income from operations.............................      .04          .04           --           --
     Gain on sale.......................................       --           --         1.91           --
     Extraordinary item.................................       --           --           --         (.03)
                                                           ------       ------       ------       ------
     Net income (loss)..................................   $  .17       $  .33       $ 2.22       $ (.37)
                                                           ======       ======       ======       ======

At the request of the Securities and Exchange Commission, the results of operations for the second and third quarters of 1998 have been restated to reflect the shift of $14 million of pretax manufacturing costs from the second quarter to the third quarter. The $14 million, which was previously recorded as part of a $55 million asset write-down in the second quarter, is now reflected as accelerated depreciation in the third quarter for assets phased out in that quarter in connection with the winding down of production at a semiconductor manufacturing facility located in Singapore. This restatement increased net income and diluted earnings per share by $9 million and $0.01 in the second quarter, and decreased these items by the same amounts in the third quarter. The restatement had no impact on the Company's revenues or earnings for the year.

F-31

Results for the first quarter of 1998 include a pretax charge of $219 million, included in cost of revenues, for discontinuance of the Texas Instruments-Hitachi joint venture and a charge of $25 million for the value of acquired research and development from two business acquisitions. The second quarter of 1998 includes a pretax operating charge of $219 million for a severance/manufacturing efficiency program and a pretax gain of $83 million for the company's sale of its interest in the Texas Instruments-Acer joint venture. The third quarter of 1998 includes a pretax operating charge of $14 million relating to the severance/manufacturing efficiency program implemented during the second quarter of 1998. Fourth-quarter 1998 results include a pretax operating charge of $72 million, essentially all of which is for the disposition of two European operations. In the first quarter of 1997, the company took a pretax charge of $56 million related to the sale of its mobile computing business and termination of its digital imaging printing development program. Results for the second quarter of 1997 include a pretax operating charge of $44 million for the termination of agreements related to proposed Thailand joint ventures and a $66 million pretax gain from the sale of three divested activities, principally software. Results for the third quarter of 1997 reflect the sale of Texas Instruments' defense business, which was closed with Raytheon Company on July 11 for $2.95 billion in cash. The net gain from this sale, after income taxes of $876 million, was $1473 million and was included in discontinued operations. As a result of the 1997 acquisition of Amati Communications Corporation, the company took a charge of $461 million in the fourth quarter for the value of acquired in-process research and development. Also in the fourth quarter, the company took a pretax charge of $42 million, primarily for severance costs related to cost-reduction actions by the materials & controls business. Diluted earnings (loss) per common share are based on average common and dilutive potential common shares outstanding (804,461,398 shares and 779,390,272 shares for the fourth quarters of 1998 and 1997).

F-32

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

INCOME
(UNAUDITED)

                                                                MILLIONS OF DOLLARS,
                                                                  EXCEPT PER-SHARE
                                                                      AMOUNTS
                                                                FOR SIX MONTHS ENDED
                                                                      JUNE 30
                                                                --------------------
                                                                 1999         1998
                                                                -------      -------
Net revenues................................................    $4,385       $4,353
Operating costs and expenses:
  Cost of revenues..........................................     2,307        2,958
  Research and development..................................       666          634
  Marketing, general and administrative.....................       659          821
                                                                ------       ------
          Total.............................................     3,632        4,413
                                                                ------       ------
Profit (loss) from operations...............................       753          (60)
Other income (expense) net..................................       143          193
Interest on loans...........................................        37           37
                                                                ------       ------
Income before provision for income taxes....................       859           96
Provision for income taxes..................................       292           33
                                                                ------       ------
Net income..................................................    $  567       $   63
                                                                ======       ======
Diluted earnings per common share...........................    $  .70       $  .08
                                                                ======       ======
Basic earnings per common share.............................    $  .72       $  .08
                                                                ======       ======
Cash dividends declared per share of common stock...........    $ .085         .043
Cash Flows
Net cash provided by operating activities...................    $  526       $  264
Cash flows from investing activities:
  Additions to property, plant and equipment................      (505)        (698)
  Purchases of short-term investments.......................      (970)        (664)
  Sales and maturities of short-term investments............     1,260        1,528
  Sales of noncurrent investments...........................       172           --
  Acquisition of businesses, net of cash acquired...........      (382)        (152)
  Proceeds from sale of businesses..........................        --          120
                                                                ------       ------
Net cash provided by (used in) investing activities.........      (425)         134
Cash flows from financing activities:
  Payments on loans payable.................................        --           (4)
  Payments on long-term debt................................       (51)         (38)
  Dividends paid on common stock............................       (67)         (66)
  Sales and other common stock transactions.................       170           63
  Common stock repurchase program...........................      (321)         (97)
                                                                ------       ------
Net cash used in financing activities.......................      (269)        (142)
Effect of exchange rate changes on cash.....................       (38)           2
                                                                ------       ------
Net increase (decrease) in cash and cash equivalents........      (206)         258
Cash and cash equivalents, January 1........................       540        1,015
                                                                ------       ------
Cash and cash equivalents, June 30..........................    $  334       $1,273
                                                                ======       ======

F-33

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

                                                                MILLIONS OF DOLLARS, EXCEPT
                                                                     PER-SHARE AMOUNTS
                                                                (UNAUDITED)
                                                                  JUNE 30        DECEMBER 31
                                                                   1999             1998
                                                                -----------      -----------
ASSETS
Current assets:
  Cash and cash equivalents.................................      $   334          $   540
  Short-term investments....................................        1,409            1,709
  Accounts receivable, less allowance for losses of $61
     million in 1999 and $70 million in 1998................        1,749            1,343
  Inventories:
     Raw materials..........................................           89               77
     Work in process........................................          380              354
     Finished goods.........................................          220              165
                                                                  -------          -------
          Inventories.......................................          689              596
                                                                  -------          -------
  Prepaid expenses..........................................           87               75
  Deferred income taxes.....................................          553              583
                                                                  -------          -------
          Total current assets..............................        4,821            4,846
                                                                  -------          -------
Property, plant and equipment at cost.......................        6,626            6,379
  Less accumulated depreciation.............................       (3,219)          (3,006)
                                                                  -------          -------
     Property, plant and equipment (net)....................      $ 3,407          $ 3,373
                                                                  -------          -------
Investments.................................................        1,987            2,564
Deferred income taxes.......................................           38               23
Other assets................................................          794              444
                                                                  -------          -------
          Total assets......................................      $11,047          $11,250
                                                                  =======          =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Loans payable and current portion long-term debt..........      $   263          $   267
  Accounts payable..........................................          554              510
  Accrued and other current liabilities.....................        1,261            1,419
                                                                  -------          -------
          Total current liabilities.........................        2,078            2,196
                                                                  -------          -------
Long-term debt..............................................          960            1,027
Accrued retirement costs....................................          776              895
Deferred income taxes.......................................          264              381
Deferred credits and other liabilities......................          248              224
Stockholders' equity:
  Preferred stock, $25 par value. Authorized -- 10,000,000
     shares. Participating cumulative preferred. None
     issued.................................................           --               --
  Common stock, $1 par value. Authorized: 1,200,000,000
     shares.
  Shares issued: 1999 -- 393,801,640; 1998 -- 392,395,997...          394              392
  Paid-in capital...........................................        1,010            1,178
  Retained earnings.........................................        5,295            4,795
  Less treasury common stock at cost.
  Shares: 1999 -- 968,912; 1998 -- 1,716,038................         (108)            (134)
  Accumulated other comprehensive income....................          130              296
                                                                  -------          -------
          Total stockholders' equity........................        6,721            6,527
                                                                  -------          -------
          Total liabilities and stockholders' equity........      $11,047          $11,250
                                                                  =======          =======

F-34

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. Share amounts have been retroactively adjusted for the two-for-one stock split in August 1999. Diluted earnings per common share are based on average common and dilutive potential common shares outstanding (812.1 and 803.8 million shares for the second quarters of 1999 and 1998, and 810.4 and 801.7 million shares for the six months ended June 30, 1999 and 1998).

2. On July 25, 1999, TI entered into an agreement to purchase Unitrode Corporation, in a stock-for stock transaction pursuant to which TI will issue approximately 17.8 million shares of common stock, valued at approximately $1.2 billion as of July 23, 1999.

3. On May 29, 1999, TI entered into an agreement to purchase Telogy Networks, Inc. in a stock-for-stock transaction pursuant to which TI will issue approximately 8.2 million shares of common stock, valued at approximately $435 million as of June 1, 1999.

4. In connection with TI's acquisition of Libit Signal Processing Ltd. (Libit) for approximately $365 million in the second quarter of 1999, TI recorded a charge of $52 million for the value of purchased in-process R&D (purchased R&D) at the acquisition date, based upon the appraised value of the related developmental projects. The purchased R&D projects were assessed, analyzed and valued within the context and framework articulated by the Securities and Exchange Commission.

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

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

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

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

5. In the second quarter of 1999, the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133 (accounting for derivatives) from 2000 to 2001. In addition, SFAS No. 137 rolled forward the transition date for the required separation for accounting purposes of an embedded derivative from its host instrument. The previous transition date was for host instruments acquired after year-end 1997. The new transition date is for host instruments acquired after year-end 1998. As a result of these changes, TI expects to adopt SFAS No. 133 in the first quarter of 2001 on a cumulative basis. TI's significant embedded derivative, the embedded call option on Micron Technology, Inc. (Micron) common shares contained in the company's Micron convertible note investment, will not be separated from the convertible note because the note was acquired prior to year-end 1998.

6. In the second quarter of 1999, TI reassessed its accounting for its investment in TI Ventures at the fund's aggregate fair value. The company has concluded that accounting for the fund based on its investment in each individual portfolio company is more consistent with TI's current investment objectives. Accordingly, unrealized gains and losses related to changes in the fund's aggregate fair

F-35

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

value will no longer be reflected in other income and expense, instead, changes in individual fair value of these available-for-sale securities will be recorded as an increase or decrease in stockholders' equity. The effect of this change is not significant.

7. In the first quarter of 1999, the company announced a consolidation of semiconductor manufacturing operations in Japan to improve manufacturing efficiencies and reduce costs. The consolidation is expected to be completed by the end of the year 2000. The action resulted in a pretax charge of $14 million in the first quarter, of which $13 million was for severance for the elimination of 153 jobs in Hatogaya, Japan and $1 million for other related costs. At June 30, 1999, the pay-out of the severance cost obligation had not yet begun. Of the $14 million charge, $11 million was included in cost of revenues and $3 million in marketing, general and administrative expense.

8. In the first quarter of 1999, sale of the Micron subordinated note and other securities generated $172 million in cash.

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

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

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

At the time of the acquisition, Butterfly management estimated the remaining cost and time to complete the purchased R&D projects to be $5 million and 264 engineer-months. The term "engineer-month" refers to the average amount of research work expected to be performed by an engineer in a month. At June 30, 1999, based on the latest available information, the estimated cost and time to complete the in-process projects was approximately $8 million and 575 engineer-months. TI expects to essentially meet its original return expectations.

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

10. In the second quarter of 1998, the company announced that, as a result of the various business divestitures over the past several years, the pending sale of its memory business (subsequently completed in September 1998), and weakness at that time in the semiconductor market environment, it was implementing a severance manufacturing efficiency program in order to more closely match the size and cost of its support functions with the company's overall size and to further combine manufacturing resources for more efficient operations. The program, which primarily affected the company's corporate activities and semiconductor businesses, included the elimination of 3,441 jobs around the world through voluntary programs, attrition, outsourcing and layoffs, as well as the closing of several facilities. As a result, the company took a pretax charge of $219 million in the second quarter of 1998, of which $126 million was included in marketing, general and administrative

F-36

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

expense and $93 million in cost of revenues. Of the $219 million charge, $161 million was for severance, $41 million for asset write-downs and $17 million for vendor cancellation and lease charges.

Of the $41 million for asset write-downs, $25 million was for U.S. semiconductor inventories and $16 million was for fixed assets, primarily accelerated depreciation on assets phased out during 1998 in connection with the winding down of production at a semiconductor manufacturing facility located in Singapore.

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

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

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

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

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

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

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

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

F-37

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

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

14. Total comprehensive income, i.e., net income plus investment and pension liability adjustments to stockholders' equity, for the second quarters of 1999 and 1998 was $147 million and $67 million. For the six months ended June 30, 1999 and 1998, it was $401 million and $71 million.

15. There has been no significant change in the status of the audit and investigation concerning grants from the Italian government.

The amount of borrowings by TECH Semiconductor Singapore under its $450 million principal amount credit facility, of which TI is a guarantor, was $365 million at June 30, 1999, compared to $240 million at year-end 1998.

16. Certain amounts in the prior period's financial statements have been reclassified to conform to the 1999 presentation.

17. The statement of income, statement of cash flows and balance sheet at June 30, 1999, are not audited but reflect all adjustments which are of a normal recurring nature and are, in the opinion of management, necessary to a fair statement of the results of the periods shown.

18. Business segment information is as follows:

                                                             MILLION OF DOLLARS

                                                     FOR THREE MONTHS    FOR SIX MONTHS
                                                       ENDED JUNE 30      ENDED JUNE 30
                                                     -----------------   ---------------
                                                      1999      1998      1999     1998
                                                     -------   -------   ------   ------
BUSINESS SEGMENT NET REVENUES
Semiconductor
  Trade............................................  $1,880    $1,530    $3,544   $3,123
  Intersegment.....................................       3         5        12       10
                                                     ------    ------    ------   ------
                                                      1,883     1,535     3,556    3,133
                                                     ------    ------    ------   ------
Materials & Controls
  Trade............................................     256       245       502      487
  Intersegment.....................................      --        --        --       --
                                                     ------    ------    ------   ------
                                                        256       245       502      487
                                                     ------    ------    ------   ------
Educational & Productivity Solutions
  Trade............................................     153       165       234      240
Corporate activities...............................      40        45        62       93
Divested activities................................      14       177        31      400
                                                     ------    ------    ------   ------
          Total....................................  $2,346    $2,167    $4,385   $4,353
                                                     ======    ======    ======   ======

F-38

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

                                                             MILLION OF DOLLARS
                                                     FOR THREE MONTHS    FOR SIX MONTHS
                                                       ENDED JUNE 30      ENDED JUNE 30
                                                     -----------------   ---------------
                                                      1999      1998      1999     1998
                                                     -------   -------   ------   ------
BUSINESS SEGMENT PROFIT (LOSS)
Semiconductor......................................  $  485    $  382    $  824   $  740
Materials & Controls...............................      42        37        83       73
Educational & Productivity Solutions...............      43        37        53       38
Corporate activities...............................     (81)      (53)     (155)     (97)
Special charges and gains, net of applicable profit
  sharing..........................................     (45)     (136)      (70)    (380)
Interest on loans/other income, excluding a second
  quarter 1998 gain of $83 million included
  above............................................      45        34       105       73
Divested activities................................      11      (222)       19     (351)
                                                     ------    ------    ------   ------
Income before provision for income taxes...........  $  500    $   79    $  859   $   96
                                                     ======    ======    ======   ======

19. The following is a detailed reconciliation of individual restructuring accruals (in millions of dollars).

YEAR OF CHARGE

                                                          1997                          1998               1999
                                           ----------------------------------   ---------------------   ----------
                                                                     RESERVES                 SC
                                           DIVESTITURE      M&C      AGAINST      SC       OPERATION        SC
                                             OF MCB/       COST      GAINS ON     AND      CLOSING &    OPERATION
                                           TERMINATION   REDUCTION   BUSINESS    CORP.    M&C SALE OF   CLOSING IN
DESCRIPTION*                       TOTAL     OF DIPD      ACTION      SALES     ACTIONS    OPERATION      JAPAN
------------                       -----   -----------   ---------   --------   -------   -----------   ----------
BALANCE DECEMBER 31, 1998........  $163        $16          $21        $24       $ 49        $ 53
Charges:
  Severance......................    13                                                                    $13
  Vendor and warranty
    obligations..................     1                                                                      1
Dispositions:
  Severance payments.............   (41)                     (4)        (1)       (16)        (20)
  Vendor and warranty obligation
    payments.....................    (1)        (1)
  Adjustments -- net reversal to
    income.......................    (3)                                           (3)
                                   ----        ---          ---        ---       ----        ----          ---
BALANCE MARCH 31, 1999...........   132         15           17         23         30          33           14
Dispositions:
  Severance payments.............    (9)                     (3)                   (5)         (1)
  Various payments...............    (8)                                                       (8)
  Adjustments -- net reversal to
    income.......................    (5)                     (2)                   (3)
                                   ----        ---          ---        ---       ----        ----          ---
BALANCE, JUNE 30, 1999...........  $110        $15          $12        $23       $ 22        $ 24          $14
                                   ====        ===          ===        ===       ====        ====          ===

* Abbreviations

SC      =   Semiconductor Business
MCB     =   Mobile Computing Business
DIPD    =   Digital Imaging Printing Development Program
Corp.   =   Corporate Division

F-39

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Power Trends, Inc.:

We have audited the accompanying balance sheets of POWER TRENDS, INC. (an Illinois corporation) as of June 30, 1999 and 1998, and the related statements of income, changes in convertible redeemable preferred stock and common stockholders' deficit and cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Power Trends, Inc. as of June 30, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles.

[Arthur Andersen LLP signature]

ARTHUR ANDERSEN LLP

Chicago, Illinois
October 14, 1999

F-40

POWER TRENDS, INC.

BALANCE SHEETS
JUNE 30, 1999 AND 1998

                                         ASSETS
                                                                 1999           1998
                                                              -----------   ------------
Current assets:
  Cash and cash equivalents.................................  $ 2,691,380   $    882,229
  Accounts receivable, less allowance for doubtful accounts
     of $81,000 and $45,000 at June 30, 1999 and 1998,
     respectively...........................................    5,841,557      3,478,696
  Inventory.................................................    4,245,652      4,201,176
  Prepaid expenses and other assets.........................      455,593        123,182
  Deferred income tax asset.................................      358,279              0
                                                              -----------   ------------
          Total current assets..............................   13,592,461      8,685,283
                                                              -----------   ------------
Equipment and leasehold improvements:
  Equipment under capital leases............................    1,900,799      1,681,784
  Furniture, fixtures and equipment,........................    7,698,310      5,618,288
  Leasehold improvements....................................      802,323        330,997
                                                              -----------   ------------
                                                               10,401,432      7,631,069
                                                              -----------   ------------
  Less -- Accumulated depreciation and amortization.........    5,117,220      3,701,547
                                                              -----------   ------------
                                                                5,284,212      3,929,522
                                                              -----------   ------------
Deposits....................................................       97,483         80,370
                                                              -----------   ------------
Patents, net of accumulated amortization of $47,107 and
  $32,695 at June 30, 1999 and 1998, respectively...........      143,627        108,727
                                                              -----------   ------------
Deferred income tax asset...................................      138,981              0
                                                              -----------   ------------
                                                              $19,256,764   $ 12,803,902
                                                              ===========   ============

                      LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT

Current liabilities:
  Accounts payable..........................................  $ 3,125,761   $  2,177,378
  Accrued expenses and other liabilities....................      930,639        611,081
  Income taxes payable......................................      275,500              0
  Obligations under capital leases -- current...............       70,584         72,530
  Term notes payable -- current.............................    1,438,007        804,416
                                                              -----------   ------------
          Total current liabilities.........................    5,840,491      3,665,405
                                                              -----------   ------------
Term notes payable..........................................    1,570,155      2,040,069
                                                              -----------   ------------
Obligations under capital leases............................       37,561        108,145
                                                              -----------   ------------
Convertible redeemable preferred stock......................   19,769,706     18,305,284
                                                              -----------   ------------
Common stockholders' deficit:
  Common stock, no par value; 17,000,000 shares authorized;
     2,849,611 and 2,794,478 shares issued and outstanding
     as of June 30, 1999 and 1998, respectively.............      394,383        342,497
  Additional paid-in capital................................       17,917         17,917
  Accumulated deficit.......................................   (8,373,449)   (11,675,415)
                                                              -----------   ------------
          Total common stockholders' deficit................   (7,961,149)   (11,315,001)
                                                              -----------   ------------
                                                              $19,256,764   $ 12,803,902
                                                              ===========   ============

The accompanying notes are an integral part of these balance sheets.

F-41

EXHIBIT 2

POWER TRENDS, INC.

STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

                                                           1999          1998          1997
                                                        -----------   -----------   -----------
Net sales.............................................  $39,014,683   $28,005,557   $18,408,118
Cost of goods sold....................................   24,786,817    18,282,405    11,916,126
                                                        -----------   -----------   -----------
          Gross profit................................   14,227,866     9,723,152     6,491,992
                                                        -----------   -----------   -----------
Operating expenses:
  General and administrative..........................    1,232,920       981,421       799,438
  Research and development............................    3,157,828     2,317,224     1,728,003
  Selling and marketing...............................    4,588,338     3,865,591     3,011,180
                                                        -----------   -----------   -----------
          Total operating expenses....................    8,979,086     7,164,236     5,538,621
                                                        -----------   -----------   -----------
          Income from operations......................    5,248,780     2,558,916       953,371
                                                        -----------   -----------   -----------
Other income (expense):
  Interest income.....................................       63,224        30,454        42,916
  Interest expense....................................     (279,159)     (272,210)     (204,222)
                                                        -----------   -----------   -----------
          Total other expense.........................     (215,935)     (241,756)     (161,306)
                                                        -----------   -----------   -----------
          Income before income taxes..................    5,032,845     2,317,160       792,065
Income tax provision..................................      242,092        60,266        10,160
                                                        -----------   -----------   -----------
Net income............................................  $ 4,790,753   $ 2,256,894   $   781,905
                                                        ===========   ===========   ===========
Basic and diluted earnings per share:
Income before preferred stock accretion...............  $     4,791   $     2,257   $       782
Less: Preferred stock accretion.......................       (8,974)       (7,509)       (6,153)
                                                        -----------   -----------   -----------
Net loss available to common stockholders.............       (4,183)       (5,252)       (5,371)
Net loss per basic and diluted common share...........        (1.48)        (1.89)        (1.96)
Weighted-average number of basic and diluted common
  shares outstanding..................................        2,820         2,786         2,741

The accompanying notes are an integral part of these statements.

F-42

POWER TRENDS, INC.

STATEMENTS OF CHANGES IN CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

                                                                        COMMON STOCKHOLDERS' DEFICIT
                                                      ----------------------------------------------------------------
                                   CONVERTIBLE            COMMON STOCK
                                   REDEEMABLE              ISSUED AND
                                 PREFERRED STOCK          OUTSTANDING        ADDITIONAL
                              ---------------------   --------------------     PAID-IN     ACCUMULATED
                              SHARES      AMOUNT       SHARES      AMOUNT      CAPITAL       DEFICIT         TOTAL
                              -------   -----------   ---------   --------   -----------   ------------   ------------
Balance, June 30, 1996......  125,740   $15,701,720   2,734,354   $315,960     $17,917     $(12,110,650)  $(11,776,773)
  Issuance of common
     stock..................        0             0      26,999      8,943           0                0          8,943
  Accretion of redemption
     value..................        0     1,247,617           0          0           0       (1,247,617)    (1,247,617)
  Net income................        0             0           0          0           0          781,905        781,905
                              -------   -----------   ---------   --------     -------     ------------   ------------
Balance, June 30, 1997......  125,740   $16,949,337   2,761,353   $324,903     $17,917     $(12,576,362)  $(12,233,542)
  Issuance of common
     stock..................        0             0      33,125     17,594           0                0         17,594
  Accretion of redemption
     value..................        0     1,355,947           0          0           0       (1,355,947)    (1,355,947)
  Net income................        0             0           0          0           0        2,256,894      2,256,894
                              -------   -----------   ---------   --------     -------     ------------   ------------
Balance, June 30, 1998......  125,740    18,305,284   2,794,478    342,497      17,917      (11,675,415)   (11,315,001)
  Issuance of common
     stock..................        0             0      55,133     51,886           0                0         51,886
  Warrant repurchase........        0             0           0          0           0          (24,365)       (24,365)
  Accretion of redemption
     value..................        0     1,464,422           0          0           0       (1,464,422)    (1,464,422)
  Net income................        0             0           0          0           0        4,790,753      4,790,753
                              -------   -----------   ---------   --------     -------     ------------   ------------
Balance, June 30, 1999......  125,740   $19,769,706   2,849,611   $394,383     $17,917     $ (8,373,449)  $ (7,961,149)
                              =======   ===========   =========   ========     =======     ============   ============

The accompanying notes are an integral part of these statements.

F-43

POWER TRENDS, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

                                                           1999          1998          1997
                                                        -----------   -----------   -----------
Cash flows from operating activities:
  Net income..........................................  $ 4,790,753   $ 2,256,894   $   781,905
                                                        -----------   -----------   -----------
  Adjustments to reconcile net income to net cash
     provided by operating activities --
     Depreciation and amortization....................    1,430,087     1,142,593       856,619
     Deferred taxes...................................     (497,260)            0             0
     Loss on sale of equipment........................            0         1,751           118
     Provision for doubtful accounts..................       36,000        10,000             0
     Provision for obsolete inventory.................       52,500             0        37,500
     Provision for warranty reserve...................       48,000             0             0
     Provision for distributor gross profit reserve...       70,000        10,000             0
     (Increase) decrease in --
       Accounts receivable............................   (2,398,861)     (544,047)   (1,675,337)
       Inventory......................................      (96,976)   (1,472,719)     (871,275)
       Prepaid expenses and other assets..............     (332,411)      (95,761)       33,816
       Deposits.......................................      (17,113)        1,447        13,945
     Increase (decrease) in --
       Accounts payable...............................      948,383       (94,588)    1,721,014
       Accrued expenses and other liabilities.........      477,058       140,755        (8,337)
                                                        -----------   -----------   -----------
          Net cash provided by operating activities...    4,510,160     1,356,325       889,968
                                                        -----------   -----------   -----------
Cash flows from investing activities:
  Proceeds from sale of equipment.....................            0         9,500         2,450
  Acquisition of equipment............................   (2,770,365)   (1,931,735)   (1,716,448)
  Acquisition of patents..............................      (49,312)      (31,787)      (28,722)
  Acquisition of equipment under capital leases:......                                 (216,565)
                                                        -----------   -----------   -----------
          Net cash used in investing activities.......   (2,819,677)   (1,954,022)   (1,959,285)
                                                        -----------   -----------   -----------
Cash flows from financing activities:
  Proceeds from issuance of common stock..............       51,886        17,594         8,943
  Warrant repurchase..................................      (24,365)            0             0
  Proceeds from long-term debt obligations............    1,000,000     1,919,117     1,831,206
  Repayments of long-term debt obligations............     (836,323)   (1,181,809)   (1,214,045)
  Repayments of capital lease obligations.............      (72,530)     (119,299)     (177,145)
  Proceeds from capital lease obligations.............                                  216,565
                                                        -----------   -----------   -----------
          Net cash provided by financing activities...      118,668       635,603       665,524
                                                        -----------   -----------   -----------
Net increase in cash and cash equivalents.............    1,809,151        37,906      (403,793)
Cash and cash equivalents, beginning of year..........      882,229       844,323     1,248,116
                                                        -----------   -----------   -----------
Cash and cash equivalents, end of year................  $ 2,691,380   $   882,229   $   844,323
                                                        ===========   ===========   ===========

The accompanying notes are an integral part of these statements.

F-44

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997

1. DESCRIPTION OF BUSINESS

Power Trends, Inc. (the Company) was founded in September, 1987, and designs, manufactures and markets plug-in power modules (integrated switching regulators) for advanced computer, data communications and industrial applications in the high-technology industry.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash equivalents include short-term investments stated at cost. The Company generally considers short-term investments with a maturity of 100 days or less at the date of purchase to be cash equivalents for purposes of the statements of cash flows.

Inventory

Inventory is stated at the lower of cost, determined on the first-in, first-out basis, or market.

The components of inventory as of June 30, 1999 and 1998 are as follows:

                                                               JUNE 99      JUNE 98
                                                               ACTUAL       ACTUAL
                                                              ---------    ---------
Raw Materials...............................................  3,302,432    3,252,864
Work in Process.............................................    302,417      454,757
Finished Goods..............................................    795,803      596,055
Obsolete Reserve............................................   (155,000)    (102,500)
                                                              ---------    ---------
          Total Inventory...................................  4,245,652    4,201,176

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost and are being depreciated over the estimated useful lives of the assets or lease terms using primarily the straight-line method. The estimated useful lives for equipment range from three to five years.

Patents

The cost of patents is being amortized using the straight-line method over their estimated useful lives of 10 years.

Revenue Recognition

Revenue for product sales are recognized at the time the product is shipped from the Company's warehouse.

Product Warranties

Most of the Company's products carry a limited warranty ranging from 90 days to one year. The Company accrues for estimated warranty costs as products are shipped.

F-45

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Supplemental Cash Flow Disclosures

The following represents supplemental disclosures to the consolidated statements of cash flows:

                                                      1999         1998         1997
                                                   ----------   ----------   ----------
Schedule of noncash investing and financing
  activities --
  Accretion of redemption value of convertible
     redeemable preferred stock..................  $1,464,422   $1,355,947   $1,247,617
Cash paid for --
  Interest.......................................     279,159      272,210      204,222
  Income taxes...................................     509,888       21,776            0
                                                   ----------   ----------   ----------

Concentration of Credit Risk

Financial instruments which potentially subject the Company to a concentration of credit risk consist primarily of receivables. The Company extends credit to its customers based upon an evaluation of the customer's financial condition and credit history. Management believes the two significant customers described below were financially sound companies based upon published data as of December 31, 1998.

For the year ended June 30, 1999, approximately 19% of the Company's net sales were obtained from one large national customer. Additionally, approximately 22.6% of the Company's June 30, 1999 receivables were from this customer.

For the year ended June 30, 1998, approximately 11% of the Company's net sales were obtained from one large national customer. Additionally, approximately 7.7% of the Company's June 30, 1998, receivables were from this customer.

For the year ended June 30, 1997, approximately 32% of the Company's net sales were obtained from one large national customer.

Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instrument held by the Company:

CURRENT ASSETS AND CURRENT LIABILITIES -- The carrying value approximates fair value due to the short maturity of these items.

LONG-TERM DEBT -- Since the Company's debt is not quoted, estimates are based on each obligation's characteristics, including remaining maturities, interest rate, credit rating, collateral, amortization schedule and liquidity. The carrying amount approximates fair value.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Computation of Net Loss Per Share

In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128 which requires companies to present basic and diluted earnings per share effective for financial statements issued

F-46

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

for periods ending after December 15, 1997. The computation of basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The effect of this computation on the number of outstanding shares is antidilutive for the periods ended June 30, 1997, 1998 and 1999, and therefore the net loss per basic and diluted earnings per share are the same.

New Accounting Pronouncements

In June, 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires the reporting and display of comprehensive income and its components, in a full set of general-purpose financial statements. In addition to net income, comprehensive income includes all non-owner changes in equity. SFAS No. 130 is effective for financial statements for fiscal years beginning after December 15, 1997, and reclassification of financial statements for earlier periods for comparative purposes is required. Due to net income being the only comprehensive income item for the Company, the Company does not believe that any additional disclosures are required as a result of adopting this pronouncement.

In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivation Instruments and Hedging Activities," which addresses the accounting for derivative instruments. SFAS No. 133 is effective for financial statements for the Company's fiscal year ending June 30, 2001. The Company does not expect that SFAS No. 133 will have a significant effect on its current financial reporting.

F-47

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. LONG-TERM DEBT

Long-term debt at June 30, 1999 and 1998, is as follows:

                                                                 1999         1998
                                                              ----------   ----------
Lease purchase obligations payable in monthly installments
  of $5,888 including interest at 15.8% through January,
  2001......................................................  $  108,145   $  180,675
Term notes --
  Term note payable under equipment facility, due in monthly
     installments of $18,451 including accrued interest at
     8.35% and 8.75% at June 30, 1999 and 1998,
     respectively, with a final maturity on January 17, 2000
     (see Note 13 for further discussion regarding final
     maturity)..............................................     500,612      669,537
  Term note payable, due in monthly installments of $3,828
     including accrued interest at 8.35% and 8.75% at June
     30, 1999 and 1998, respectively, with a final maturity
     on January 17, 2000 (see Note 13 for further discussion
     regarding final maturity)..............................      66,472      104,667
  Term note payable, due in monthly installments of $19,948
     including accrued interest at 8.35% and 8.75% at June
     30, 1999 and 1998, respectively, with a final maturity
     on June 17, 2000 (see Note 13 for further discussion
     regarding final maturity)..............................     431,743      623,605
  Term note payable under equipment facility, due in monthly
     installments of $4,244 including accrued interest at
     8.35% and 8.75% at June 30, 1999 and 1998,
     respectively, with a final maturity on October 17, 2000
     (see Note 13 for further discussion regarding final
     maturity)..............................................     144,726      181,094
  Term note payable under equipment facility, due in monthly
     installments of $22,645 including accrued interest at
     8.35% and 8.75% at June 30, 1999 and 1998, with a final
     maturity on May 17, 2003 (see Note 13 for further
     discussion regarding final maturity)...................     895,759    1,079,367
  Term note payable under equipment facility, due in monthly
     installments of $22,340 including accrued interest at
     7.75% at June 30, 1999, with a final maturity on
     October 17, 2003 (see Note 13 for further discussion
     regarding final maturity)..............................     968,849            0
  Subordinated term note, principal payable in monthly
     installments of $16,610 including accrued interest at
     12.75% with a final maturity date of June 1, 1999......           0      186,215
                                                              ----------   ----------
          Total long-term debt..............................   3,116,306    3,025,160
Less -- Current portion of long-term debt...................   1,508,591      876,946
                                                              ----------   ----------
                                                              $1,607,715   $2,148,214
                                                              ==========   ==========

F-48

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The principal portion of long-term debt becomes due as follows:

                                                       LOAN       CAPITALIZED
                                                    OBLIGATIONS     LEASES       COMBINED
                                                    -----------   -----------   ----------
Fiscal year ending --
  2000............................................  $1,438,007     $ 70,584     $1,508,591
  2001............................................     540,179       37,561        577,740
  2002............................................     472,351            0        472,351
  2003............................................     488,618            0        488,618
  2004............................................      69,006            0         69,006
                                                    ----------     --------     ----------
          Total...................................  $3,008,161     $108,145     $3,116,306
                                                    ==========     ========     ==========

Term Notes Payable

On April 17, 1999, the Company renewed its equipment facility. The equipment facility allows the Company to borrow up to an aggregate principal amount of $1,000,000, and expires on October 17, 2000. Under the terms of the agreement, all borrowings are transferred to term notes before or at the expiration of the facility, and charge interest at prime plus .10% (7.85% at June 30, 1999). Equipment financed under these term notes is used as collateral until the associated debt is paid in full. See Note 13 for further discussion regarding the maturity of the term notes outstanding at June 30, 1999.

Revolving Line of Credit

On April 17, 1999, in addition to the equipment facility, the Company renewed its revolving line-of-credit facility agreement with the same bank. The revolving line of credit is limited to $1,000,000, with interest payable in monthly installments at prime plus .10% (7.85% at June 30, 1999). The revolving line of credit expires on September 17, 1999, and is renewable annually. All borrowings are secured by the Company's equipment, fixtures, inventory, accounts receivable and general intangibles. As of June 30, 1998, the Company had a $74,850 letter of credit outstanding on this revolving line of credit. At June 30, 1999, the Company was no longer required to maintain the $74,850 letter of credit for its building lessor due to the Company achieving certain performance measures as described in the lease agreement.

4. CONVERTIBLE REDEEMABLE PREFERRED STOCK

Convertible redeemable preferred stock is stated at its original cost plus the accretion of its redemption value and consists of the following at June 30, 1999, 1998 and 1997:

                                                   1999          1998          1997
                                                -----------   -----------   -----------
Series A-1, no par value; 17,500 shares
  authorized, issued and outstanding,
  convertible to common stock at $.40 per
  share.......................................  $ 1,565,238   $ 1,449,295   $ 1,341,940
Series A-2, no par value; 10,000 shares
  authorized, issued and outstanding,
  convertible to common stock at $.70 per
  share.......................................    1,501,740     1,390,500     1,287,500
Series A-3, no par value; 6,250 shares
  authorized, issued and outstanding,
  convertible to common stock at $.80 per
  share.......................................    1,014,837       939,664       870,059
Series A-4, no par value; 77,050 shares
  authorized; 66,375 shares issued and
  outstanding, convertible at $.80 per
  share.......................................   10,050,580     9,306,093     8,616,753

F-49

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                                                   1999          1998          1997
                                                -----------   -----------   -----------
Series B-1, no par value; 27,000 shares
  authorized and 25,615 shares issued and
  outstanding, convertible at $1.40 per
  share.......................................    5,637,311     5,219,732     4,833,085
                                                -----------   -----------   -----------
                                                $19,769,706   $18,305,284   $16,949,337
                                                ===========   ===========   ===========

Conversion prices are subject to change from time to time to prevent dilution of the conversion rights. The Company may require the conversion of all of the outstanding preferred stock upon the closing of a firm commitment underwritten public offering, as defined. At June 30, 1999, 1998 and 1997, each share of preferred stock was convertible into 100 shares of common stock.

Each holder of preferred stock may require the Company to redeem all or part of their preferred stock held. The redemption price/liquidation value per share will be equal to the purchase price of the stock, plus 8% compounded annually from the date of issuance until the date of redemption/liquidation, plus any accrued but unpaid dividends. In the event of liquidation, dissolution or winding up of the Company, if proceeds available for distribution to the Company's stockholders are $6.40 or less per share of common stock, then the preferred stockholders are entitled to an involuntary liquidation preference equal to the liquidation value, as defined. As of June 30, 1999, no preferred stock was redeemed.

The holders of preferred stock share pro rata with the common stockholders (based on an as-if-converted basis) in all dividends and distributions. Additionally, they are entitled to vote on all matters submitted to a vote of the Company's stockholders, with each share of preferred stock having voting rights equivalent to the number of shares of common stock issuable upon conversion. Holders of preferred stock are entitled to acquire the same aggregate purchase rights granted to common stockholders.

As long as 5,000 shares of preferred stock remain outstanding, the Company must comply with certain restrictions and limitations and obtain consent of holders of a majority of the shares of the preferred stock prior to entering into certain transactions and agreements, including declaring or paying dividends on junior securities.

The Company entered into a put agreement with redeemable preferred stockholders (Investors) whereby those Investors who own (alone or together with the other Investors) 20% of the common stock (on an as-if-converted basis) have the right to require the Company to purchase all or any portion of their preferred stock of the Company on or after January 20, 2000, at a price based on the Company's fair market value, as defined. If the Company cannot purchase all of the put shares with immediately available funds, then the Investor may either completely rescind all or part of the put, or sell the put shares to the Company in exchange for a put note bearing interest at prime plus 4% annually. The put agreement will terminate on the closing of a qualified public offering, as specified in the put agreement.

F-50

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. COMMON STOCK

As of June 30, 1999 and 1998, common stock consists of the following:

                                                   1999          1998          1997
                                                -----------   -----------   -----------
Authorized shares.............................   17,000,000    17,000,000    16,500,000
Issued and outstanding........................   (2,849,611)   (2,794,478)   (2,761,353)
                                                -----------   -----------   -----------
                                                 14,150,389    14,205,522    13,738,647
                                                ===========   ===========   ===========
Reserved for issuance --
  Conversion of preferred stock...............  (12,574,000)  (12,574,000)  (12,574,000)
  Long-term incentive plan....................     (385,308)     (659,894)      (54,519)
  Exercise of warrants........................      (30,833)     (155,833)     (305,833)
  Exercise of stock options...................   (1,038,420)     (815,795)     (804,295)
                                                -----------   -----------   -----------
                                                (14,028,561)  (14,205,522)  (13,738,647)
                                                -----------   -----------   -----------
Unreserved shares.............................      121,828             0             0
                                                ===========   ===========   ===========

6. EXECUTIVE STOCK AND EMPLOYMENT AGREEMENTS

The Company has executive stock and employment agreements with certain employees and consultants of the Company. The agreements stipulate that the common stock owned by the employees vest pursuant to a time vesting schedule. The vesting schedule is used in determining the Company's repurchase price per share under a repurchase option. In the event of a sale of the Company, as defined, the vesting schedule will accelerate so that all stock vests as of the closing of such sale.

Under the terms of the executive stock and employment agreements, executive stock is subject to certain restrictions, including but not limited to transferability and voting rights. Additionally, the executives are subject to noncompete covenants.

At June 30, 1999, the executives collectively owned 1,035,360 shares of stock. As of June 30, 1999, all shares have vested under this agreement.

7. INCENTIVE PLANS

The Company has established a long-term incentive stock plan which allow the Company's Board of Directors to make grants of restricted stock, nonqualified stock options, and incentive stock options to individuals as selected by the Board of Directors.

All restricted stock or options awarded under the following plans are subject to certain restrictions including, but not limited to, transferability and repurchase in favor of the Company, as defined within the plans. Restricted stock awards are additionally subject to voting right restrictions.

The Company accounts for employee stock options under APB Opinion 25, as permitted under generally accepted accounting principles. Accordingly, no compensation cost has been recognized in the accompanying financial statements related to these options. Had compensation cost for these options been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is an accounting alternative that is permitted but not required, the Company's net income would not have been materially different.

The fair value of each option is estimated on the date of grant based on the Black-Scholes option pricing model assuming, among other things, a risk-free interest rate of 5.2%, no dividend yield or volatility factor, and an expected life of approximately three years. A majority of the options granted to employees vest ratably over four years.

F-51

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The stock option activity under the Company's Stock Incentive Plan covering nonqualified stock option and incentive stock options are as follows:

                                                            OUTSTANDING   WEIGHTED AVERAGE
                                                              OPTIONS      EXERCISE PRICE
                                                            -----------   ----------------
Outstanding at June 30, 1996..............................     681,753         $0.245
  Granted.................................................     186,000          0.350
  Exercised...............................................      (7,499)         0.282
  Canceled................................................     (55,959)         0.345
                                                             ---------         ------
Outstanding at June 30, 1997..............................     804,295          0.262
  Granted.................................................      26,500          0.537
  Exercised...............................................      (3,125)         0.350
  Canceled................................................     (11,875)         0.350
                                                             ---------         ------
Outstanding at June 30, 1998..............................     815,795          0.269
  Granted.................................................     238,000          0.650
  Exercised...............................................     (13,375)         0.213
  Canceled................................................      (2,000)         0.200
                                                             ---------         ------
Outstanding at June 30, 1999..............................   1,038,420          0.357

Restricted Stock Agreement

The restricted stock purchase agreements granted under the long-term incentive stock plan provide ownership incentives to key employees of the Company and members of its Board of Directors and allow participants to purchase shares of common stock. Restricted stock vests pursuant to a time vesting schedule and becomes fully vested in the event of a sale of the Company. The vesting schedule is used to determine the Company's repurchase price per share under a repurchase option. As of June 30, 1999, 1,814,251 shares have been issued at fair market value, with prices ranging from $.05 to $1.35 per share. At June 30, 1999, 1,741,206 shares have vested under this plan.

Nonqualified Stock Options

As of June 30, 1999, the Company has nonqualified stock options outstanding to acquire 208,482 shares with exercise prices ranging from $.10 to $.65 per share. These options have been issued at fair market value and vest pursuant to a time vesting schedule. All options vest in the event of a sale of the Company, as defined by the plan. As of June 30, 1999, all options have vested under this plan.

Incentive Stock Options

As of June 30, 1999, the Company has issued incentive stock options to acquire 829,938 shares with exercise prices ranging from $.20 to $1.35 per share. These options have been issued at fair market value and vest pursuant to a time vesting schedule. All options vest in the event of a sale of the Company, as defined by the plan. As of June 30, 1999, 571,813 options have vested under this plan.

8. WARRANTS

On January 15, 1991, the Company entered into a lease financing arrangement that allowed the Company to finance amounts for future equipment acquisitions. As part of this transaction, the Company granted a warrant to the lessor on January 15, 1991, to purchase up to 150,000 shares of the Company's common stock. The warrant expired on January 15, 1998.

F-52

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

On April 29, 1992, the Company obtained additional financing under the lease financing arrangement described above and issued a warrant to purchase an additional 125,000 shares of common stock at an exercise price of $.80 per share. The warrant expired in April, 1999, and had certain transfer restrictions, which include being subject to a first refusal right by the Company. The Company exercised its first refusal right and purchased the warrant from the holder for $24,365, and subsequently allowed the warrant to expire.

On June 7, 1996, the Company entered into a new lease financing arrangement. As part of this transaction, the Company granted a warrant to the lessor on June 7, 1996, to purchase up to 5,833 shares of the Company's common stock at an exercise price of $3.00 per share. The warrant is exercisable at any time within 10 years of the issue date or 5 years from the effective date of the Company's initial public offering, whichever is longer. As part of the new financing lease arrangement, the Company entered into a subordinated term note with the lender, discussed in Note 3. As part of this transaction, the Company granted a warrant to the lender to purchase up to 25,000 shares of the Company's common stock at an exercise price of $3.00 per share. The warrant is exercisable at any time within 10 years of the issue date or 5 years from the effective date of the Company's initial public offering, whichever is longer.

9. REGISTRATION AGREEMENT

The Company has a registration agreement with certain of its preferred stockholders to use its best efforts to register any common stock issued upon the conversion of preferred stock at the request of at least 10% of the stockholders. The agreement is exercisable on of after January 20, 2000. All expenses of this registration, except as provided in the agreement, will be paid by the Company.

10. COMMITMENTS AND CONTINGENCIES

Operating Lease

During October, 1995, the Company entered into an operating lease agreement for office and warehouse space which is scheduled to expire on May 31, 2006. The lease requires the Company to pay real estate taxes, assessments and liability insurance premiums for the benefit of the landlord as well as certain maintenance expenses related to the facilities. In accordance with the agreement, the Company made a deposit to the lessor for $74,850.

During January, 1999, the Company entered into a operating sublease agreement for warehouse space which is scheduled to expire on June 29, 2007. The lease requires the Company to pay an annual licensing fee in the amount of $25,000, real estate taxes, assessments and liability insurance premiums for the benefit of the landlord as well as certain maintenance expenses related to the facilities.

Future minimum payments under all operating leases as of June 30, 1999, are as follows:

2000....................................................   $  435,259
2001....................................................      445,184
2002....................................................      455,409
2003....................................................      476,673
2004....................................................      487,498
Thereafter..............................................    1,462,594
                                                           ----------
                                                           $3,762,617
                                                           ==========

Total rent expense for years ended June 30, 1999, 1998 and 1997, was approximately $385,912, $332,119 and $344,654, respectively.

F-53

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company routinely enters into noncancelable purchase commitments for certain inventory items. As of June 30, 1999, the Company has outstanding commitments of approximately $7,493,126.

11. INCOME TAXES

The Company records income taxes in accordance with the Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 utilizes the liability method and deferred taxes are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of the enacted tax laws. In adopting SFAS No. 109, the Company determined that the previously unrecognized tax benefits did not satisfy the recognition criteria set forth in the standard. Accordingly, as of June 30, 1998 and 1997, a valuation allowance of $1,794,068 and $2,199,802, respectively, remained recorded against the deferred tax assets. For the year ended June 30, 1999, the net operating loss carryforwards and tax credit carryforwards have been fully utilized, and the deferred tax assets have been recorded on the Company's accompanying June 30, 1999, balance sheet.

The provision for income taxes included in the accompanying statements of income consists of the following:

                                                        1999        1998       1997
                                                      ---------    -------    -------
Currently payable --
  Federal..........................................   $ 589,352    $60,266    $10,160
  State............................................     150,000          0          0
  Deferred provision...............................    (497,260)         0          0
                                                      ---------    -------    -------
          Total provision..........................   $ 242,092    $60,266    $10,160
                                                      =========    =======    =======

The statutory federal income tax rate is reconciled to the Company's effective income tax rates below:

                                                              1999     1998     1997
                                                              -----    -----    -----
Statutory federal income tax rate...........................   34.0%    34.0%    34.0%
Permanent differences.......................................   (2.3)     1.0      1.0
State income tax, net of federal tax effect.................    4.8      4.8      4.8
Reduction in valuation allowance due to utilization of net
  operating loss carryforwards and tax credit
  carryforwards.............................................  (35.6)   (37.2)   (38.5)
Other.......................................................    3.9      0.0      0.0
                                                              -----    -----    -----
          Effective tax rate................................    4.8%     2.6%     1.3%
                                                              =====    =====    =====

F-54

POWER TRENDS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The significant temporary differences which comprise deferred tax assets and liabilities are as follows at June 30, 1999, 1998 and 1997:

                                                      1999        1998          1997
                                                    --------   -----------   -----------
Deferred income tax assets --
  Current --
     Reserves.....................................  $213,012   $   197,313   $   145,550
     Other nondeductible accruals.................   121,799        70,344        48,306
     Unicap.......................................    23,468        24,798        24,600
     Valuation allowance..........................         0      (292,455)     (218,456)
                                                    --------   -----------   -----------
          Total net current deferred income tax
            assets................................  $358,279   $         0   $         0
                                                    ========   ===========   ===========
  Long-term --
     Net operating loss carryforwards.............  $      0   $ 1,013,726   $ 2,249,547
     Investment tax credit carryforwards..........         0       266,403      (276,114)
     Depreciation.................................   147,014       225,871        12,300
     Miscellaneous................................    (8,033)       (4,387)       (4,387)
     Valuation allowance..........................         0    (1,501,613)   (1,981,346)
                                                    --------   -----------   -----------
          Total net long-term deferred income tax
            assets................................  $138,981   $         0   $         0
                                                    ========   ===========   ===========

12. EMPLOYEE BENEFIT PLAN

401(k) Plan

Effective April 1, 1995, the Company established a voluntary contributory 401(k) plan which allows eligible employees to participate after working 1,000 hours during a calendar year. The plan allows participants to contribute annually up to 15% of their total compensation on a pretax basis, not to exceed the IRS calendar year maximum, and up to an additional 10% of total compensation on an after-tax basis. Under the plan, the Company's matching contributions are discretionary, as determined by the Board of Directors. Company 401(k) matching contributions totaled $94,173, $33,131 and $26,245 for the years ended June 30, 1999, 1998 and 1997, respectively.

13. SUBSEQUENT EVENT

The Company is in the process of negotiating with a bank to refinance all outstanding term notes as of June 30, 1999 (see Note 3), into one consolidated term loan. The Company anticipates that the new consolidated loan agreement will have similar terms and conditions as the previous individual term notes.

F-55

EXHIBIT 2

ANNEX A


MERGER AGREEMENT

DATED AS OF SEPTEMBER 29, 1999

BY AND AMONG

TEXAS INSTRUMENTS INCORPORATED,

POWER ACQUISITION CORP.,

AND

POWER TRENDS, INC.




TABLE OF CONTENTS

                                                                                 PAGE
                                                                                 ----
Article 1     Definitions......................................................    1
Article 2     The Transaction..................................................    2
        2.1   Merger...........................................................    2
        2.2   Closing..........................................................    2
        2.3   Closing Events...................................................    2
              (a)  Plan and Articles of Merger.................................    2
              (b)  Deliveries by the Company...................................    2
              (c)  Deliveries by Buyer and Subsidiary..........................    2
        2.4   Effect of Merger.................................................    3
              (a)  General.....................................................    3
              (b)  Corporate Organization......................................    3
              (c)  Conversion of Company's Shares..............................    3
              (d)  Company Treasury Shares.....................................    3
              (e)  Conversion of Subsidiary's Stock............................    4
        2.5   Exchange Fund and Procedures.....................................    4
              (a)  Exchange Fund...............................................    4
              (b)  Exchange Procedures.........................................    4
              (c)  Distributions with Respect to Unsurrendered Certificates....    4
              (d)  No Further Ownership Rights in Shares.......................    5
              (e)  No Fractional Shares of Buyer Common Stock..................    5
              (f)  Termination of Exchange Fund................................    5
              (g)  No Liability................................................    5
              (h)  Investment of the Exchange Fund.............................    5
              (i)  Lost Certificates...........................................    6
              (j)  Withholding Rights..........................................    6
              (k)  Stock Transfer Books........................................    6
              (l)  Affiliates..................................................    6
              (m)  Dissenters' Rights..........................................    6
              (n)  Stock Options...............................................    7
              (o)  Warrant Exercise............................................    7
Article 3     Representations and Warranties of the Company....................    7
        3.1   Organization.....................................................    7
        3.2   Authority........................................................    7
        3.3   Enforceability...................................................    8
        3.4   Capital Stock....................................................    8
        3.5   No Violation.....................................................    9
        3.6   No Consent Required..............................................    9
        3.7   Financial Statements.............................................    9
        3.8   Books and Records................................................    9
        3.9   Title to Assets..................................................    9
        3.10  Accounts Receivable..............................................    9
        3.11  Equipment........................................................    9
        3.12  Contracts........................................................   10
        3.13  Real Property....................................................   11
        3.14  Permits..........................................................   11
        3.15  Patents, Marks and Copyrights....................................   12
        3.16  Undisclosed Liabilities..........................................   13
        3.17  Taxes............................................................   13
        3.18  No Material Adverse Change.......................................   14

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                                                                                 PAGE
                                                                                 ----
        3.19  Employee Benefits................................................   14
        3.20  Insurance........................................................   15
        3.21  Compliance.......................................................   16
        3.22  Legal Proceedings................................................   16
        3.23  Absence of Certain Events........................................   16
        3.24  Environmental Matters............................................   17
        3.25  Employees........................................................   18
        3.26  Labor Relations..................................................   18
        3.27  Certain Payments.................................................   18
        3.28  Related Persons..................................................   18
        3.29  Broker's Fee.....................................................   19
        3.30  Year 2000 Compliance.............................................   19
        3.31  Product Recalls..................................................   19
        3.32  Takeover Statutes................................................   20
        3.33  Information Supplied.............................................   20
        3.34  Accounting Matters...............................................   20
        3.35  Subsidies........................................................   20
        3.36  Disclosure.......................................................   20
Article 4     Representations and Warranties of Buyer and Subsidiary...........   21
        4.1   Organization.....................................................   21
        4.2   Authority........................................................   21
        4.3   Enforceability...................................................   21
        4.4   No Violation.....................................................   21
        4.5   No Consent Required..............................................   21
        4.6   Broker's Fee.....................................................   21
        4.7   SEC Reports; Financial Statements................................   21
        4.8   Information Supplied.............................................   22
        4.9   Accounting Matters...............................................   22
Article 5     Events Prior to Closing..........................................   22
        5.1   Conduct of Business..............................................   22
        5.2   Preparation of the S-4 and the Proxy Statement...................   22
        5.3   Letters of Accountants...........................................   23
        5.4   Shareholder Meeting..............................................   23
        5.5   Access to Information............................................   23
        5.6   Reasonable Best Efforts..........................................   23
        5.7   Other Filings....................................................   24
        5.8   Notice of Developments...........................................   25
        5.9   Acquisition Proposals............................................   25
        5.10  Public Announcements.............................................   26
        5.11  Tax-Free Reorganization Treatment................................   26
        5.12  Employee Matters.................................................   26
        5.13  Affiliate Letters................................................   26
        5.14  Fees and Expenses................................................   26
        5.15  Listing of Stock.................................................   27
        5.16  Comdisco Release.................................................   27
Article 6     Conditions to Closing............................................   27
        6.1   Conditions of Each Party.........................................   27
        6.2   Conditions of Buyer and Subsidiary...............................   27
        6.3   Conditions of the Company........................................   28
Article 7     Survival of Representations, Warranties, Covenants and
              Agreements; Escrow Provisions....................................   29
        7.1   Survival of Representations, Warranties, Covenants and
              Agreements.......................................................   29

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                                                                                 PAGE
                                                                                 ----
        7.2   Escrow Provisions................................................   29
              (a)  Establishment of the Escrow Fund............................   29
              (b)  Recourse to the Escrow Fund.................................   29
              (c)  Escrow Period; Distribution of Escrow Fund upon Termination
                   of Escrow Period............................................   30
              (d)  Protection of Escrow Fund...................................   30
              (e)  Claims Upon Escrow Fund.....................................   30
              (f)  Objections to Claims........................................   31
              (g)  Resolution of Conflicts.....................................   31
        7.3   Shareholder Representatives; Power of Attorney...................   31
              (a)  Shareholder Representatives.................................   31
              (b)  Exculpation.................................................   32
              (c)  Actions of the Shareholder Representatives..................   32
        7.4   Third Party Claims...............................................   32
        7.5   Depositary Agent's Duties........................................   32
              (a)  Limitation on Duties of Depositary Agent....................   32
              (b)  Compliance with Orders......................................   32
              (c)  Limitations on Liability of Depositary Agent................   33
              (d)  Good Faith of Depositary Agent..............................   33
              (e)  Non-responsibility of Depositary Agent......................   33
              (f)  Indemnification of Depositary Agent.........................   33
              (g)  Resignation of Depositary Agent.............................   33
              (h)  Fees........................................................   34
Article 8     Termination, Amendment and Waiver................................   34
        8.1   Termination by Mutual Agreement..................................   34
        8.2   Termination by Either Buyer or the Company.......................   34
        8.3   Termination by the Company.......................................   34
        8.4   Termination by Buyer.............................................   35
        8.5   Effect of Termination and Abandonment............................   35
        8.6   Amendment........................................................   35
        8.7   Extension; Waiver................................................   35
Article 9     Miscellaneous....................................................   36
        9.1   Confidentiality..................................................   36
        9.2   Notices..........................................................   36
        9.3   Further Assurances...............................................   37
        9.4   Entire Agreement.................................................   37
        9.5   Assignment.......................................................   37
        9.6   No Third Party Beneficiaries.....................................   37
        9.7   Severability.....................................................   37
        9.8   Captions.........................................................   37
        9.9   Construction.....................................................   37
        9.10  Counterparts.....................................................   38
        9.11  Governing Law....................................................   38
        9.12  Binding Effect...................................................   38

iii

MERGER AGREEMENT

This Agreement is entered into as of September 29, 1999 by Texas Instruments Incorporated, a Delaware corporation ("Buyer"), Power Acquisition Corp., an Illinois corporation and wholly-owned subsidiary of Buyer ("Subsidiary"), and Power Trends, Inc., an Illinois corporation (the "Company").

BACKGROUND

A. The Company is engaged in the business of manufacturing and selling integrated switching regulators and DC-to-DC converters with a focus on on-board modular power solutions.

B. This Agreement contemplates a transaction in which Subsidiary will merge with and into the Company, with (i) the Company becoming a wholly-owned subsidiary of Buyer and (ii) all of the issued and outstanding capital stock of the Company being converted into the right to receive shares of common stock, par value $1.00 per share, of Buyer (together with any associated right to acquire shares of the Cumulative Preferred Stock of Buyer pursuant to Buyer's Rights Plan (collectively, "Buyer Common Stock").

C. A portion of the shares of Buyer Common Stock otherwise issuable or reserved for issuance by Buyer in connection with the Merger shall be placed in escrow by Buyer, the release of which shall be contingent upon the occurrence of certain events and the satisfaction of certain conditions, all as set forth in Article 7.

D. As an inducement to Buyer and Subsidiary to enter into this Agreement, certain stockholders of the Company have concurrently herewith entered into a voting agreement in the form attached hereto as EXHIBIT A (the "Voting Agreement"), pursuant to which such stockholders have agreed to vote all shares of capital stock of the Company owned by them in favor of the Merger.

E. As an inducement to Buyer and Subsidiary to enter into this Agreement, Buyer, the Company and the employees of the Company identified therein have concurrently herewith entered into the employment agreements in the form attached hereto as EXHIBITS B-1, B-2, B-3, B-4, B-5 and B-6, which agreements shall become effective as of the Effective Time.

F. For federal income Tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

G. For accounting purposes, it is intended that the Merger shall be accounted for as a "pooling of interests."

Now, therefore, in consideration of their mutual promises and intending to be legally bound, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

Certain capitalized terms used in this Agreement are defined in ANNEX I.

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ARTICLE 2

THE TRANSACTION

2.1 Merger. Upon the terms and subject to the conditions of this Agreement, Subsidiary shall merge with and into the Company (the "Merger") at the Effective Time. The Company shall be the corporation surviving the Merger (the "Surviving Corporation").

2.2 Closing. The closing of the transactions contemplated by this Agreement ("Closing") shall take place at a time and location to be specified by the Parties on November 30, 1999, or if later, on the second business day after satisfaction or waiver of the conditions set forth in Article 6 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions at the Closing).

2.3 Closing Events. At Closing, the following events shall take place, all of which shall be considered to take place concurrently:

(a) Plan and Articles of Merger. The Company and Subsidiary shall enter into a plan of merger consistent with the terms hereof and otherwise in form and substance reasonably satisfactory to the Parties (the "Plan of Merger") and execute articles of merger in form and substance reasonably satisfactory to the Parties (the "Articles of Merger"), to which the Plan of Merger is an exhibit, and shall file the Articles of Merger with the Secretary of State of the State of Illinois.

(b) Deliveries by the Company. The Company shall make or cause the following deliveries to Buyer and Subsidiary:

(1) the Company shall deliver an Officer's Certificate to Buyer and Subsidiary certifying that: (i) the Company's representations and warranties in Article 3 are true and correct in all material respects as of the Closing Date as if made at and as of Closing, (ii) the Company has performed in all material respects all of its obligations under this Agreement that it is required to perform prior to or at Closing; and
(iii) Shareholder Approval has been obtained;

(2) the Company shall deliver the written resignations, effective as of the Effective Time, of all of the Company's incumbent directors and officers other than those whom Buyer has specified by Notice to the Company at least five days prior to Closing; and

(3) Johnson and Colmar shall deliver to Buyer an opinion of counsel addressing such matters as reasonably requested by, and otherwise in form and substance reasonably satisfactory to, Buyer (the "Company Legal Opinion").

(c) Deliveries by Buyer and Subsidiary. Buyer and Subsidiary shall make the following deliveries:

(1) Buyer and Subsidiary shall deliver the shares of Buyer Common Stock issuable or reserved for issuance pursuant to the Merger in accordance with Sections 2.5(a) and 7.2(a);

(2) Buyer and Subsidiary shall deliver a joint Officers' Certificate to the Company (for delivery to the Shareholder Representatives) certifying that: (i) the representations and warranties of Buyer and Subsidiary in Article 4 are true and correct in all material respects on the Closing Date as if made at and as of Closing; and (ii) Buyer and Subsidiary have performed in all material respects all of their respective obligations under this Agreement that they are required to perform prior to or at Closing; and

(3) Weil, Gotshal & Manges LLP shall deliver to the Company an opinion of counsel addressing such matters as reasonably requested by, and otherwise in form and substance reasonably satisfactory to, the Company (the "Buyer Legal Opinion").

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2.4 Effect of Merger.

(a) General. The Merger shall become effective at the time (the "Effective Time") that the Secretary of State of the State of Illinois issues a certificate of merger in respect of the Articles of Merger. The Merger shall have the effects as set forth in the applicable provisions of the Illinois Business Corporation Act. The Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either the Company or Subsidiary in order to carry out and give effect to the Merger.

(b) Corporate Organization. As of the Effective Time, the articles of incorporation of the Company shall be amended and restated in accordance with the amended and restated articles of incorporation attached hereto as EXHIBIT C and such amended and restated articles of incorporation shall be the articles of incorporation of the Surviving Corporation. As of the Effective Time, the by-laws, officers and directors of Subsidiary shall be the by-laws, officers and directors of the Surviving Corporation.

(c) Conversion of Company's Shares. At and as of the Effective Time, the Shares shall be converted as follows:

(1) each share of Preferred Stock issued and outstanding immediately prior to the Effective Time (other than a Dissenting Share or shares held by the Company) shall be converted into the right to receive the number (rounded to the nearest ten thousandth) of fully paid and non-assessable shares of Buyer Common Stock equal to (i) the Exchange Ratio multiplied by (ii) 100; and

(2) each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than a Dissenting Share or shares held by the Company) shall be converted into the right to receive the number (rounded to the nearest ten thousandth) of fully paid and non- assessable shares of Buyer Common Stock equal to the Exchange Ratio.

For purposes of this Agreement, the "Exchange Ratio" shall be determined by dividing $8.67 by the Average Buyer Stock Price. As used herein, the "Average Buyer Stock Price" means the average of the daily high and low sales prices, regular way, of one share of Buyer Common Stock (rounded to the nearest thousandth) on the New York Stock Exchange ("NYSE") (as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another nationally recognized source) during the 20 consecutive trading day period ending on the second trading day prior to the Effective Time; provided, however, that (i) subject to Section 8.3(b), if the Average Buyer Stock Price is less than $67.00, the Average Buyer Stock Price for purposes of determining the Exchange Ratio shall be equal to $67.00 (the "Minimum Average Buyer Stock Price"), and (ii) subject to
Section 8.4(b), if the Average Buyer Stock Price is greater than $107.00, the Average Buyer Stock Price for purposes of determining the Exchange Ratio shall be equal to $107.00 (the "Maximum Average Buyer Stock Price"). If between the date of this Agreement and the Effective Time Buyer changes (or establishes a record date for changing) the outstanding shares of Buyer Common Stock into a different number of shares or a different class of shares as a result of any stock dividend, subdivision, reclassification, recapitalization, split (including a reverse split), combination, exchange of shares or extraordinary dividend (in cash or otherwise), or any similar event, then the Average Buyer Stock Price, the Minimum Average Buyer Stock Price and the Maximum Average Buyer Stock Price shall be appropriately adjusted to the extent necessary to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, extraordinary dividend or such similar event. All such shares of Buyer Common Stock issued pursuant to this Section 2.4(c), together with any cash in lieu of fractional shares of Buyer Common Stock to be paid pursuant to Section 2.5(e), are collectively referred to herein as the "Merger Consideration."

(d) Company Treasury Shares. At and as of the Effective Time, each share of Common Stock owned by the Company shall become one share of common stock of the Surviving Corporation and

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each share of Preferred Stock owned by the Company shall be converted into 100 shares of common stock of the Surviving Corporation, all of which shall be held in treasury.

(e) Conversion of Subsidiary's Stock. At and as of the Effective Time, each share of Subsidiary's common stock, par value $.01 per share, shall be converted into one share of common stock of the Surviving Corporation.

2.5 Exchange Fund and Procedures.

(a) Exchange Fund. Prior to the Effective Time, Buyer shall appoint a commercial bank or trust company reasonably acceptable to the Company to act as exchange agent hereunder for the purpose of exchanging Shares for the Merger Consideration (the "Exchange Agent"). At or prior to the Effective Time, Buyer shall deposit with the Exchange Agent, in trust for the benefit of holders of Shares, certificates representing the Buyer Common Stock issuable pursuant to Section 2.4(c) in exchange for outstanding Shares less the shares of Buyer Common Stock constituting the Escrow Fund (which will be deposited with the Depositary Agent pursuant to the provisions of Article 7). Buyer agrees to make available to the Exchange Agent from time to time as needed, cash sufficient to pay cash in lieu of fractional shares pursuant to Section 2.5(e) and any dividends and other distributions pursuant to Section 2.5(c). Any cash and certificates of Buyer Common Stock deposited with the Exchange Agent shall hereinafter be referred to as the "Exchange Fund."

(b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall use commercially reasonable efforts to cause the Exchange Agent to mail to each holder of a certificate or certificates which, immediately prior to the Effective Time, represented outstanding Shares (the "Certificates") (i) a letter of transmittal which shall specify that delivery shall be effective, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent, and which letter shall be in customary form and have such other provisions as Buyer may reasonably specify; and (ii) instructions for effecting the surrender of such Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate to the Exchange Agent together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor (A) shares of Buyer Common Stock representing, in the aggregate, the whole number of shares that such holder has the right to receive pursuant to
Section 2.4(c) (after taking into account all Shares then held by such holder), less the number of shares of Buyer Common Stock that are to be contributed on the holder's behalf and deposited into the Escrow Fund, and (B) a check in the amount equal to the cash that such holder has the right to receive pursuant to the provisions of this Article 2, including cash in lieu of any dividends and other distributions pursuant to Section 2.5(c) and cash in lieu of fractional shares pursuant to Section 2.5(e). No interest will be paid or will accrue on any cash payable pursuant to
Section 2.5(c) or Section 2.5(e). In the event of a transfer of ownership of Common Stock or Preferred Stock that is not registered in the transfer records of the Company, a certificate evidencing, in the aggregate, the proper number of shares of Buyer Common Stock, a check in the proper amount of cash in lieu of any fractional shares of Buyer Common Stock pursuant to
Section 2.5(e) and any dividends or other distributions to which such holder is entitled pursuant to Section 2.5(c), may be issued with respect to such Shares to such a transferee if the Certificate representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer Taxes have been paid.

(c) Distributions with Respect to Unsurrendered Certificates. No dividends or other distributions declared or made with respect to shares of Buyer Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Buyer Common Stock that such holder would be entitled to receive upon surrender of such Certificate and no cash payment in lieu of fractional shares of Buyer Common Stock shall be paid to any such holder pursuant to Section 2.5(e) until such holder shall surrender such Certificate in

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accordance with Section 2.5(b). Subject to the effect of applicable Laws, following surrender of any such Certificate, there shall be paid to such holder of shares of Buyer Common Stock issuable in exchange therefor, without interest, (a) promptly after the time of such surrender, the amount of any cash payable in lieu of fractional shares of Buyer Common Stock to which such holder is entitled pursuant to Section 2.5(e) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Buyer Common Stock, and (b) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such whole shares of Buyer Common Stock.

(d) No Further Ownership Rights in Shares. All shares of Buyer Common Stock issued and cash paid upon conversion of the Shares in accordance with the terms of Article 2 (including any cash paid pursuant to Sections 2.5(c) and 2.5(e)) shall be deemed to have been issued or paid in full satisfaction of all rights pertaining to the Shares.

(e) No Fractional Shares of Buyer Common Stock. No certificates or scrip representing fractional shares of Buyer Common Stock or book-entry credit of the same shall be issued upon the surrender for exchange of Certificates and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a stockholder of Buyer or a holder of shares of Buyer Common Stock. Notwithstanding any other provision of this Agreement, each holder of Shares exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Buyer Common Stock (after taking into account all Certificates delivered by such holder and the deposit of Buyer Common Stock in the Escrow Fund) shall receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Buyer Common Stock multiplied by (ii) the closing price on the NYSE (as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another nationally recognized source) for a share of Buyer Common Stock on the date of the Effective Time. As promptly as practicable after the determination of the aggregate amount of cash to be paid to holders of fractional interests, the Exchange Agent shall notify Buyer and Buyer shall cause the Surviving Corporation to deposit such amount with the Exchange Agent and shall cause the Exchange Agent to forward payments to such holders of fractional interests subject to and in accordance with the terms hereof.

(f) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of Certificates for six months after the Effective Time shall be delivered to the Surviving Corporation or otherwise on the instruction of the Surviving Corporation, and any holders of the Certificates who have not theretofore complied with this Article 2 shall thereafter look only to the Surviving Corporation and Buyer for the Merger Consideration with respect to the Shares formerly represented thereby to which such holders are entitled pursuant to Section 2.4(c) and 2.5(b), any cash in lieu of fractional shares of Buyer Common Stock to which such holders are entitled pursuant to Section 2.5(e) and any dividends or distributions with respect to shares of Buyer Common Stock to which such holders are entitled pursuant to Section 2.5(c). Any such portion of the Exchange Fund remaining unclaimed by holders of Shares five years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Authority) shall, to the extent permitted by Law, become the property of the Surviving Corporation free and clear of any claims or interest of any Person previously entitled thereto.

(g) No Liability. None of Buyer, the Subsidiary, the Company, the Surviving Corporation or the Exchange Agent shall be liable to any Person in respect of any Merger Consideration from the Exchange Fund delivered, in good faith, to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(h) Investment of the Exchange Fund. The Exchange Agent shall invest any cash included in the Exchange Fund as directed by Buyer on a daily basis. Any interest and other income resulting from such investments shall promptly be paid to Buyer.

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(i) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity by such Person against any claim that may be made against the Surviving Corporation with respect to such Certificate, the Exchange Agent will deliver in exchange for such lost, stolen or destroyed Certificate the applicable Merger Consideration with respect to the Shares formerly represented thereby, and unpaid dividends and distributions on shares of Buyer Common Stock deliverable in respect thereof, pursuant to this Agreement.

(j) Withholding Rights. Each of the Surviving Corporation and Buyer shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code, the rules and regulations promulgated thereunder, or any provision of a Tax Law. To the extent that amounts are so withheld by the Surviving Corporation or Buyer, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect to which such deduction and withholding was made by the Surviving Corporation or Buyer, as the case may be.

(k) Stock Transfer Books. The stock transfer books of the Company shall be closed immediately upon the Effective Time and there shall be no further registration of transfers of Shares thereafter on the records of the Company. On or after the Effective Time, any Certificates presented to the Exchange Agent or Buyer for any reason shall be converted into the Merger Consideration with respect to the Shares formerly represented thereby, and any dividends or other distributions to which the holders thereof are entitled pursuant to Section 2.5(c).

(l) Affiliates. Notwithstanding anything to the contrary herein, no shares of Buyer Common Stock or cash shall be delivered to a Person who may be deemed an "affiliate" of the Company in accordance with Section 5.13 for purposes of Rule 145 under the Securities Act, or for purposes of qualifying the Merger for "pooling of interests" under APB 16 and the applicable SEC rules and regulations until such Person has executed and delivered to Buyer the written agreement contemplated by Section 5.13.

(m) Dissenters' Rights. Notwithstanding anything in this Agreement to the contrary, those Shares ("Dissenting Shares") that are issued and outstanding immediately prior to the Effective Time and which are held by shareholders who did not vote in favor of the Merger and have complied with all of the relevant provisions of Section 5/11.70 of the Illinois Business Corporation Act ("Dissenting Shareholders") shall not be converted into or be exchangeable for the right to receive the Merger Consideration, but shall instead represent only the rights of a dissenting shareholder under
Section 5/11.70 of the Illinois Business Corporation Act, including the right to obtain payment for the estimated fair value of those shares, plus accrued interest, as provided under the Illinois Business Corporation Act, unless and until such holders shall have failed to perfect or shall have effectively withdrawn or lost their rights to appraisal under the Illinois Business Corporation Act. If any Dissenting Shareholder shall have failed to perfect or shall have effectively withdrawn or lost such right, such holder's Shares shall thereupon be converted into and become exchangeable for the right to receive, as of the Effective Time, the Merger Consideration without any interest thereon. The Company shall give Buyer
(i) prompt notice of any written demands for appraisal of any Shares, attempted withdrawals of such demands and any other instruments served pursuant to the Illinois Business Corporation Act and received by the Company relating to shareholders' rights of appraisal, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal. Neither the Company nor the Surviving Corporation shall, except with the prior written consent of Buyer, voluntarily make any payment with respect to, or settle or offer to settle, any such demand for payment. If any Dissenting Shareholder shall fail to perfect or shall have effectively withdrawn or lost the right to dissent, the Shares held by such Dissenting Shareholder shall thereupon

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be treated as though such Shares had been converted into the right to receive the Merger Consideration pursuant to Section 2.4(c).

(n) Stock Options. As soon as practicable following the date of this Agreement, Buyer and the Company (or, if appropriate, any committee of the Board of Directors of the Company administering the Company's stock option plans (collectively, the "Company Option Plans")) shall take such action and the Company shall obtain all such agreements and consents, if any, as may be required to effect the following provisions of this Section 2.5(n). As of the Effective Time each option to purchase shares of Common Stock pursuant to the Company Option Plans (a "Company Stock Option") which is then outstanding shall be assumed by Buyer and converted into an option (or, at Buyer's election, Buyer may grant a new substitute option under the terms of Buyer's stock option plan) (an "Assumed Stock Option") to purchase the number of shares of Buyer Common Stock (rounded up to the nearest whole share) equal to (x) the number of shares of Common Stock subject to such option multiplied by (y) the Exchange Ratio, at an exercise price per share of Buyer Common Stock (rounded down to the nearest penny) equal to (A) the former exercise price per share of Common Stock under such option immediately prior to the Effective Time divided by (B) the Exchange Ratio; provided, however, that in the case of any Company Stock Option to which
Section 421 of the Internal Revenue Code applies by reason of its qualification under Section 422 of the Internal Revenue Code, the conversion formula shall be adjusted, if necessary, to comply with Section 424(a) of the Internal Revenue Code. Except as provided above, each Assumed Stock Option shall be subject to the same expiration date and vesting provisions as were applicable to such converted Company Stock Option immediately prior to the Effective Time. Promptly after the Effective Time, Buyer shall use its reasonable best efforts to prepare and file with the SEC a registration statement on Form S-8 or other appropriate form with respect to shares of Buyer Common Stock subject to the Assumed Stock Options and to maintain the effectiveness of such registration statement or registration statements covering such Assumed Stock Options (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such Assumed Stock Options remain outstanding. Buyer shall take all corporate action necessary to reserve for issuance under an appropriate stock option plan of Buyer a sufficient number of shares of Buyer Common Stock for delivery upon exercise of the options described above.

(o) Warrant Exercise. As soon as practicable after the date of this Agreement, the Company shall secure the agreement of the holder of that certain outstanding warrant to purchase 30,833 shares of Common Stock (the "Warrant") to exercise the Warrant prior to the Effective Time and shall confirm to Buyer the consummation of such exercise prior to the Effective Time.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

In order to induce Buyer and Subsidiary to enter into this Agreement, the Company represents and warrants to Buyer and Subsidiary, except to the extent that any statement in this Article 3 is qualified or limited by an exception in the Disclosure Schedule, as follows:

3.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Illinois, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform its obligations under all Contracts. The Company is duly qualified to do business as a foreign corporation and is in good standing under the Laws of each state or other jurisdiction in which qualification is required by Law. The Company has delivered copies to Buyer and Subsidiary of the Company's Organizational Documents.

3.2 Authority. The Company has the power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. As of the date hereof, a duly constituted special committee of the board, with full delegated authority to act in respect hereof, has by unanimous vote of

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the members thereof, duly and validly authorized the execution and delivery of this Agreement and the Voting Agreement and approved the consummation of the transactions contemplated hereby and thereby and has resolved to recommend that the shareholders of the Company approve and adopt the Merger on substantially the terms and conditions set forth in this Agreement. The Company's execution and delivery of this Agreement and, subject to receipt of Shareholder Approval, consummation of the Merger and related transactions contemplated hereby, have been duly authorized by all necessary action required by the Company's Organizational Documents and the Illinois Business Corporation Act.

3.3 Enforceability. This Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms except as enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

3.4 Capital Stock.

(a) The Company's authorized capital stock consists of 17,000,000 shares of Common Stock, no par value, and 137,800 shares of Preferred Stock, no par value, consisting of 17,500 shares designated as Series A-1 Convertible Preferred Stock, 10,000 shares designated as Series A-2 Convertible Preferred Stock, 6,250 shares designated as Series A-3 Convertible Preferred Stock, 77,050 shares designated as Series A-4 Convertible Preferred Stock, and 27,000 shares designated as Series B-1 Convertible Preferred Stock.

(b) The Company has 3,071,695 shares of Common Stock issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable, and none of which was issued in violation of the Securities Act or any state securities or other Law or in violation of or subject to any preemptive rights. The Company holds no issued shares of Common Stock in treasury. No Common Stock is held by any subsidiary of the Company.

(c) The Company has 125,740 shares of Preferred Stock issued and outstanding, consisting of 17,500 shares of Series A-1 Convertible Preferred Stock, 10,000 shares of Series A-2 Convertible Preferred Stock, 6,250 shares of Series A-3 Convertible Preferred Stock, 66,375 shares of Series A-4 Convertible Preferred Stock, and 25,615 shares of Series B-1 Convertible Preferred Stock, all of which are duly authorized, validly issued, fully paid and nonassessable, and none of which was issued in violation of the Securities Act or any state securities or other Law or in violation of or subject to any preemptive rights. The Company holds no issued shares of Preferred Stock in treasury (including through any subsidiary).

(d) There are outstanding Options to purchase a total of 1,056,086 shares of Common Stock as listed on Schedule 3.4(d). Schedule 3.4(d) correctly sets forth with respect to each Option, the name of the holder thereof, the number of underlying shares, the date of grant, the applicable vesting schedule and the exercise price thereunder.

(e) Except as set forth in Sections 3.4(b) and 3.4(c), there are no outstanding shares of capital stock or other equity securities of the Company nor are there any equity equivalents, interests in the ownership or earnings of the Company or other similar rights (including stock appreciation rights). Except as disclosed on Schedule 3.4(d), and except for the Warrant, there are no securities of the Company convertible into or exchangeable for shares of capital stock or other equity securities of the Company or options, warrants, calls, puts, subscription rights, conversion rights or other Contracts to which the Company is party or by which the Company is bound providing for the Company's issuance of any Preferred or Common Stock or any other equity securities.

(f) Except for (i) Corporate Governance Agreements and (ii) redemption obligations under Article Four of the Company's Articles of Incorporation, there are no shareholders agreements, buy-sell agreements, voting trusts or other Contracts to which the Company is a party or by which it is bound relating to the voting or disposition of any Shares or creating any obligation of the Company to repurchases, redeem or otherwise acquire or retire any Shares or any Options.

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(g) Except for all of the issued and outstanding capital stock of the Foreign Sales Corporation, the Company does not own any shares of capital stock of or other equity interest in any corporation or other Person.

3.5 No Violation. Subject only to obtaining the Shareholder Approval, the Company's execution, delivery and performance of this Agreement will not either directly or indirectly (and with or without Notice or the passage of time or both):

(a) violate or conflict with the Company's Organizational Documents or with any resolution adopted by its boards of directors;

(b) result in a breach of or default under any Contract to which the Company is a party or by which it is bound;

(c) result in the imposition or creation of a Lien upon any of the assets of the Company; or

(d) violate or conflict with, or give any Governmental Authority or other Person the right to challenge the Merger or to obtain any other relief under, any Law or Order to which the Company is subject.

3.6 No Consent Required. Except as required by HSR or as disclosed in Schedule 3.6, the Company's execution, delivery and performance of this Agreement do not require any Notice to, filing with, Permit from or other Consent of any Governmental Authority or other Person.

3.7 Financial Statements. The Company has delivered copies of the Financial Statements to Buyer and Subsidiary. The Financial Statements fairly present in all material respects the Company's financial position, results of operations and cash flows as of the dates indicated and for the years then ended, in conformity with GAAP.

3.8 Books and Records. The Books and Records of the Company are complete and correct and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal accounting controls. The corporate minute books of the Company contain accurate and complete records of all meetings and corporate actions taken by written consent of the Company's boards of directors and shareholders. At Closing, all of the Books and Records of the Company (including its corporate minute books) will be in its possession.

3.9 Title to Assets. The Company owns or has a leasehold interest in all of the tangible and intangible assets of any type or kind that it purports to own or lease, including (i) all of the assets which are reflected in the June 30 Balance Sheet except for assets which were sold or disposed of after June 30, 1999 in the Ordinary Course of Business and (ii) all of the assets which were purchased or otherwise acquired after June 30, 1999 and which were not sold or disposed of prior to the date of this Agreement in the Ordinary Course of Business. The Company has good and marketable title to all of these assets, free and clear of any Liens (except as disclosed in Schedule 3.9), and they constitute all of the tangible and intangible assets relating to or used, held for use or useful in the conduct of the Business and are sufficient to enable the Business to be operated in the same manner that it is currently operated.

3.10 Accounts Receivable. Except as disclosed in Schedule 3.10, the Company's Accounts Receivable: represent valid obligations and have arisen solely out of bona fide sales and deliveries of goods, performance of services and other business transactions made in the Ordinary Course of Business; to the Company's Knowledge, are not subject to valid defenses, set-off or counterclaims; and, to the Company's Knowledge, are collectible at the full recorded amount thereof less, in the case of accounts receivable appearing on the June 30 Balance Sheet, the recorded allowance for collection of doubtful accounts on the June 30 Balance Sheet. The allowance for collection of doubtful accounts on the June 30 Balance Sheet has been determined in accordance with GAAP consistent with past practice.

3.11 Equipment. Schedule 3.11 contains complete and accurate lists of all of the Company's Equipment having a purchase price of more than $10,000, identifying each piece of Equipment by vendor, description, model number, serial number and department.

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3.12 Contracts.

(a) Schedule 3.12(a) consists of subschedules which contain complete and accurate lists of the following Contracts of the Company as of the date of this Agreement (listing each Contract only once if more than one listing otherwise would be required):

(1) all unfilled purchase orders and other Contracts for the purchase of the Company's products in an amount exceeding $25,000 (Schedule 3.12(a)(1));

(2) all Equipment Leases, identifying each Equipment Lease by (i) vendor, description, model number, serial number and department of the piece of Equipment in question and (ii) lessor, lessee, term of lease and rent payable (Schedule 3.12(a)(2));

(3) all Facility Leases and Former Facility Leases, identifying each Facility Lease and Former Facility Lease by (i) name, location and use of the Facility in question, and (ii) for each Facility Lease, lessor, lessee, term of lease and rent payable, and also identifying any related Leasehold Improvements by location, description and cost (Schedule 3.12(a)(3));

(4) all Contracts (or series of related Contracts) for the purchase or sale of raw materials, parts, supplies, products or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than six months or involve payments in an amount exceeding $25,000 (Schedule 3.12(a)(4));

(5) all Contracts evidencing or securing any Liability of the Company (Schedule 3.12(a)(5));

(6) all Contracts with distributors and sales representatives (Schedule 3.12(a)(6));

(7) all Contracts with any Related Party (Schedule 3.12(a)(7));

(8) all Contracts by which the Company has guaranteed the contractual performance of or any payment by another Person (Schedule 3.12(a)(8));

(9) all powers of attorney and other Contracts by which the Company has authorized another Person to act as its attorney-in-fact or agent (Schedule 3.12(a)(9));

(10) all Contracts creating a partnership or joint venture with another Person or involving a sharing of profits, losses, costs or Liabilities with another Person (Schedule 3.12(a)(10));

(11) all Contracts that restrict or purport to restrict the geographical area or scope of the business activities of the Company or that limit or purport to limit the freedom of the Company to engage in any line of business or to compete with any Person (Schedule 3.12(a)(11));

(12) all Contracts granting a right of first refusal or first negotiation;

(13) all Contracts pertaining to employee compensation, employment, termination of employment or consulting services, including any agreement that could result in any benefit payable to any Person in connection with the transactions contemplated hereby (Schedule 3.12(a)(13));

(14) all Contracts (or series of related Contracts) entered into outside of the Ordinary Course of Business and involving the expenditure or receipt by any party of an amount exceeding $10,000 (Schedule 3.12(a)(14));

(15) all Contracts requiring the payment of royalty for use of any intellectual property (Schedule 3.12(a)(15));

(16) all Contracts providing for the license of any intellectual property of the Company to third parties or by any third party to the Company (Schedule 3.12(a)(16)); and

(17) all Corporate Governance Agreements (Schedule 3.12(a)(17)).

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The Company has delivered to Buyer and Subsidiary (i) copies of all written Contracts listed on Schedule 3.12(a), (ii) a written description of all oral Contracts, if any, listed on Schedule 3.12(a), (iii) copies of all written amendments or modifications of or supplements to the Contracts listed on Schedule 3.12(a), and (iv) a written description of all oral amendments or modifications of or supplements to the Contracts listed on Schedule 3.12(a), if any.

(b) Except as disclosed in Schedule 3.12(b), each Contract listed on Schedule 3.12(a) (i) is legal, valid, binding, enforceable in accordance with its terms, and in full force and effect and (ii) will continue to be legal, valid, binding, enforceable in accordance with its terms, and in full force and effect on identical terms following consummation of the Merger.

(c) Except as disclosed in Schedule 3.12(c):

(1) no party to a Contract listed on Schedule 3.12(a) is in Default in any material respect under the Contract, and no event has occurred or circumstance exists that (with or without Notice or the passage of time, or both) could result in a Default in a material respect under a Contract listed on Schedule 3.12(a) or could give any party to a Contract listed on Schedule 3.12(a) the right to exercise any remedy under the Contract or to cancel, terminate or modify the Contract;

(2) the Company has not given Notice to or received Notice from any other Person relating to an alleged, possible or potential Default under any Contract listed on Schedule 3.12(a);

(3) each purchase order and other Contract listed in Schedule 3.12(a)(1) has been entered into in the Ordinary Course of Business and without the commission of any act, either alone or in concert with any other Person, and without any consideration having been paid or promised, that is or would be in violation of any Law or Order; and

(4) for each Facility Lease listed in Schedule 3.12(a)(3), the Company (i) has a good and valid leasehold interest in such Facility Lease free and clear of all Liens, except (x) Taxes and general and special assessments not in default and payable without penalty and interest, and (y) easements, covenants and other restrictions that do not materially impair the current use, occupancy, or value, or the marketability of the Company's interest in such real property; (ii) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered its leasehold interest in the Facility Lease; and
(iii) all facilities located in or benefiting the Facility Lease are now, and will be at the time of Closing, in good operating condition and repair and, to the Company's Knowledge, structurally sound and free of defects, with no material alterations or repairs required thereto under applicable Laws, Permits or insurance company requirements, to the Company's Knowledge. All such facilities are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer, and storm sewer, all of which services are adequate in accordance with all applicable Laws.

3.13 Real Property. The Company does not own and has not owned, and any current, or former, subsidiaries or corporate predecessors-in-interest do not own and have not owned, any Real Property.

3.14 Permits.

(a) Schedule 3.14(a) contains a complete and accurate list of all Permits held by the Company as of the date of this Agreement. The Company has delivered copies to Buyer and Subsidiary of all Permits listed on Schedule 3.14(a).

(b) Except as disclosed in Schedule 3.14(b):

(1) all Permits listed on Schedule 3.14(a) are valid and in full force and effect, and no other Permits are required for the lawful conduct of the Business as it is currently conducted;

(2) the Company has conducted the Business in compliance in all material respects with the Permits listed on Schedule 3.14(a);

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(3) no event has occurred or circumstance exists that (with or without Notice or the passage of time or both) could (i) constitute or result in a violation of or failure to comply with any Permit listed on Schedule 3.14(a) or (ii) result in the revocation, withdrawal, suspension, cancellation, termination or material modification of any Permit listed;

(4) the Company has not received any written or oral Notice from any Governmental Authority or other Person regarding (i) any actual, alleged or potential violation of or failure to comply with any Permit listed on Schedule 3.14(a) or (ii) any actual, proposed or potential revocation, withdrawal, suspension, cancellation, termination or modification of any Permit listed; and

(5) the Company has duly filed on a timely basis all applications that were required to be filed for the renewal of the Permits listed on Schedule 3.14(a) and have duly made on a timely basis all other filings required to have been made in respect of the Permits listed.

3.15 Patents, Marks and Copyrights.

(a) Schedule 3.15(a) consists of three subschedules and contains complete and accurate lists of the following intellectual property of the Company as of the date of this Agreement:

(1) all Patents (Schedule 3.15(a)(1));

(2) all Marks (Schedule 3.15(a)(2)); and

(3) all Copyrights (Schedule 3.15(a)(3)).

The Company has delivered copies to Buyer and Subsidiary of all Patents, Marks and Copyrights listed on Schedule 3.15(a).

(b) The Patents, Marks and Copyrights listed on Schedule 3.15(a) are all those necessary for the conduct of the Business as it is currently conducted. Except as disclosed in Schedule 3.15(b), the Company owns, free and clear of any Liens, or has a royalty-free, exclusive, perpetual and irrevocable license to use, all of the Patents, Marks and Copyrights listed on Schedule 3.15(a).

(c) Except as disclosed in Schedule 3.15(c):

(1) all of the issued Patents listed on Schedule 3.15(a)(1) are currently in compliance with formal legal requirements (including payment of filing, examination and maintenance fees and proofs of working or use) and are valid and enforceable;

(2) no Patent listed on Schedule 3.15(a)(1) is or has been involved in any interference, reissue, reexamination or opposition proceeding, and to the Company's Knowledge, none is Threatened; and

(3) to the Company's Knowledge, (i) there is no potentially interfering Patent of any other Person and (ii) no issued Patent listed on Schedule 3.15(a)(1) is being or has been infringed or is being or has been challenged or threatened in any way.

(d) Except as disclosed in Schedule 3.15(d):

(1) all of the Marks listed on Schedule 3.15(a)(2) that have been registered with any Governmental Authority are currently in compliance with formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications) and are valid and enforceable;

(2) no Mark listed on Schedule 3.15(a)(2) is or has been involved in any opposition, invalidation or cancellation and, to the Company's Knowledge, none is Threatened; and

(3) to the Company's Knowledge, (i) there is no potentially interfering Mark of any other Person and (ii) no Mark listed on Schedule 3.15(a)(2) is being or has been infringed or is being or has been challenged or threatened in any way.

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(e) The Company has taken all actions reasonably necessary or appropriate to protect its Proprietary Information. Each employee of the Company has executed a written assignment of inventions to the Company, and each third party technical consultant or contractor of the Company has executed a written assignment of inventions, copyrights and obligation of confidentiality in favor of the Company.

(f) To the Company's Knowledge, no employee of the Company has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign or disclose information concerning his work to any Person other than the Company.

(g) The Company possesses all Proprietary Rights necessary for the conduct of the Business as presently conducted. The conduct of the Business as presently conducted does not infringe upon any intellectual property rights of any third party.

(h) Except as set forth on Schedule 3.15(h), the Company has not licensed any intellectual property of the Company to any third party.

3.16 Undisclosed Liabilities. Except as disclosed in Schedule 3.16, as of the date of this Agreement the Company does not have, and as of Closing the Company will not have, any Liabilities except for (i) Liabilities reflected on the June 30 Balance Sheet and (ii) Liabilities that have arisen since June 30, 1999 in the Ordinary Course of Business.

3.17 Taxes.

(a) The Company has filed all Tax Returns that it was required to file prior to the date of this Agreement and will file all Tax Returns that it may become required to file on or after the date of this Agreement and on or prior to the Closing Date. All Tax Returns that the Company filed prior to the date of this Agreement were correct and complete in all material respects, and all Taxes due in connection with these returns have been paid. All Tax Returns that the Company files on or after the date of this Agreement and prior to the Closing Date will be correct and complete in all material respects, and all Taxes due in connection with these returns will be paid when due.

(b) No Tax Return that the Company filed prior to the date of this Agreement is currently under audit or examination, and the Company has not received Notice from any Governmental Authority that (i) any Tax Return that it filed will be audited or examined or that (ii) it is or may be liable for additional Taxes in respect of any Tax Return or for the payment of Taxes in respect of a Tax Return that it did not file (because, for example, it believed that it was not subject to taxation by the jurisdiction in question).

(c) The Company has withheld and paid to the proper Governmental Authority all Taxes that it was required to withhold and pay in respect of compensation or other amounts paid to any employee or independent contractor.

(d) The Company did not have any delinquent Taxes as of June 30, 1999, and the reserve for Taxes reflected on the June 30 Balance Sheet was adequate for all unpaid Taxes.

(e) Except as disclosed in Schedule 3.17(e), the Company has not extended the time in which to file any Tax Return, waived the statute of limitations for any Tax or agreed to any extension of time for a Tax assessment or deficiency.

(f) The Company has not filed a consent under sec. 341(f) of the Internal Revenue Code (relating to collapsible corporations) or made any payments, or is or could become obligated under an existing Contract (including a stock option) to make any payments, that are not deductible under sec. 280G of the Internal Revenue Code (relating to "golden parachute" payments).

(g) Schedule 3.17(g) lists all Tax Returns that the Company has filed since January 1, 1997. The Company has delivered copies to Buyer and Subsidiary of all of the Tax Returns listed on Schedule 3.17(g). The Company is not a party to any agreement providing for the allocation or

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sharing of Taxes. The Company does not have any liability under Treasury Regulation Section 1.1502-6 or any similar provision of Law for U.S. federal income Taxes or any other Tax of any Person other than itself.

(h) The Company is not currently, has not been within the last five years, and does not anticipate becoming a "United States real property holding company" within the meaning of Section 897(c) of the Internal Revenue Code.

(i) The Company has not constituted either a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the Internal Revenue Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Internal Revenue Code (i) in the two years prior to the date of this Agreement or (ii) in a distribution which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Internal Revenue Code) in conjunction with the Merger.

3.18 No Material Adverse Change. Since June 30, 1999, there has not been any material adverse change in the Company's financial position, results of operations or assets, and no event has occurred or circumstance exists relating to the Company specifically (as opposed to the electronics industry or the United States economy generally) that has had or could reasonably be expected to have a Material Adverse Effect.

3.19 Employee Benefits.

(a) Schedule 3.19(a) contains a complete and accurate list of all Employee Benefit Plans under which the Company has any obligation or liability (contingent or otherwise). The Company has delivered complete and correct copies to Buyer and Subsidiary of all written Employee Benefit Plans listed on Schedule 3.19(a) (including the plan documents and all related trust agreements, insurance policies and other Contracts) and a written description of all oral Employee Benefit Plans so listed. The Company has also delivered to Buyer and Subsidiary copies of the most recent summary plan description, annual report (IRS Form 5500 series), summary annual report, financial statements, actuarial report and Internal Revenue Service favorable determination letter for each plan listed (to the extent applicable). The Company has also delivered correct and complete copies of the forms of stock option agreements used to make grants under the Company Option Plans.

(b) Except as disclosed in Schedule 3.19(b), in the case of each Employee Benefit Plan listed on Section 3.19(a):

(1) the plan (and each related trust or insurance policy) complies in form and in operation in all respects with the applicable requirements of ERISA, the Internal Revenue Code and any other Law (or complied in form and operation while the Company maintained or contributed to or was bound by the plan or its employees participated in the plan, and, to the Company's Knowledge, there are no failures to comply with applicable Law prior thereto);

(2) all required contributions to or premiums or other payments in respect of the plan have been timely paid;

(3) there have been no "prohibited transactions" (as defined in sec. 406 of ERISA and sec. 4975 of the Internal Revenue Code) in respect of the plan; and

(4) no Suit in respect of the administration or operation of the plan or the investment of plan assets is pending or, to the Company's Knowledge, Threatened, and to the Company's Knowledge, there is no basis for any such Suit.

(c) Except as disclosed in Schedule 3.19(c) or to the extent required by sec. 4980B of the Internal Revenue Code, the Company does not provide health or other welfare benefits to any retired or former employee and is not obligated to provide health or other welfare benefits to any active employee following his or her retirement or other termination of service.

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(d) The Company does not maintain and has never maintained an Employee Benefit Plan that is or was subject to the "minimum funding standards" under sec. 302 of ERISA or that is or was subject to Title IV of ERISA.

(e) The Company does not contribute to and has never been required to contribute to any "multiemployer plan" (as defined in sec. 3(37) of ERISA), incurred any "withdrawal liability" (as defined in sec. 4021 of ERISA) in respect of any multiemployer plan or withdrawn from any multiemployer plan in a "complete withdrawal" or a "partial withdrawal" (as respectively defined in sec.sec. 4203 and 4205 of ERISA).

(f) Each Employee Benefit Plan and any related trust intended to qualify under Section 401(a) of the Internal Revenue Code so qualifies. Any voluntary employee benefit association which provide benefits to current or former employees of the Company or their beneficiaries is and has been qualified under Section 501(c)(9) of the Internal Revenue Code.

(g) The Company is not a member of a group of trades or businesses under common control or treated as a single employer within the meaning of
Section 414(b), (c) or (m) of the Internal Revenue Code.

(h) Except as disclosed in Schedule 3.19(h), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any employee (current, former or retired) of the Company, (ii) increase any benefits under any Employee Benefit Plan or Contract with any such employee or current or former director of the Company, or (iii) result in the acceleration of time of payment of, vesting of or other rights in respect of any such benefits.

(i) Each of the Employee Benefit Plans covering employees outside of the United States is fully funded through adequate reserves on the Financial Statements, insurance contracts, annuity contracts, trust funds or similar arrangements. The benefits and compensation under the Employee Benefit Plans and Contracts covering employees of the Company outside of the United States are no more than customary and reasonable for the country in which such employees work and the industry in which the Company conducts its business.

3.20 Insurance.

(a) Schedule 3.20(a) consists of four subschedules and lists:

(1) all insurance policies under which the Company or any director or officer of the Company (in his or her capacity as a director or officer) is insured or has been insured at any time since January 1, 1997 (Schedule 3.20(a)(1));

(2) all self-insurance arrangements by the Company (Schedule 3.20(a)(2));

(3) all Contracts and arrangements, other than insurance policies and self-insurance arrangements, for the transfer or sharing of any risk by the Company (Schedule 3.20(a)(3)); and

(4) all obligations of the Company to provide insurance coverage to any Person other than an employee of the Company ((Schedule 3.20(a)(4)).

The Company has delivered to Buyer and Subsidiary (i) copies of all insurance policies listed on Schedule 3.20(a)(1) and all Contracts listed on Schedule 3.20(a)(3) and (ii) a written description of all self-insurance arrangements listed on Schedule 3.20(a)(2).

(b) Schedule 3.20(b) lists the amount and provides a brief description of each claim in excess of $25,000 under each insurance policy listed on Schedule 3.20(a)(1).

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3.21 Compliance. Except as disclosed in Schedule 3.21:

(a) The Company has complied in all material respects, and is in compliance in all material respects, with each Law and Order that is or was applicable to it or to the conduct of the Business.

(b) No event has occurred or circumstance exists that (with or without Notice or the passage of time or both) could (i) constitute or result in a violation by the Company of or its failure to comply with any applicable Law or Order or (ii) give rise to any legal obligation of the Company to undertake or bear all or any portion of the cost of any remedial action of any kind.

(c) The Company has not received any written or oral Notice from any Governmental Authority or other Person regarding (i) any actual, alleged or potential violation by the Company of or its failure to comply with any applicable Law or Order or (ii) any actual, alleged or potential obligation of the Company to undertake or bear all or any portion of the cost of any remedial action of any kind.

3.22 Legal Proceedings.

(a) Schedule 3.22(a) consists of two subschedules and lists:

(1) all pending Suits in which the Company is a party or which otherwise relate to or affect the Company or the Business (Schedule 3.22(a)(1)); and

(2) all other Suits involving monetary claims of more than $25,000 or requests for injunctive relief in which the Company was a party or which otherwise related to or affected (or could have affected) the Company or the Business (Schedule 3.22(a)(2)).

The Company has delivered to Buyer and Subsidiary (i) copies of all pleadings, correspondence and other documents relating to each Suit listed on Schedule 3.22(a)(1) and (ii) a written description in reasonable detail of each Suit listed on Schedule 3.22(a)(2).

(b) Except as disclosed in Schedule 3.22(b):

(1) none of the pending Suits listed on Schedule 3.22(a)(1) could reasonably be expected to have a Material Adverse Effect;

(2) there is no Threatened Suit against the Company or which otherwise relates to or could affect the Company or the Business;

(3) to the Company's Knowledge, no event has occurred or circumstance exists that may give rise to or serve as a basis for any Suit to be brought or Threatened against the Company; and

(4) there is no Threatened Suit that challenges the Merger or could have the effect of preventing, delaying, making illegal or otherwise interfering with the Merger.

3.23 Absence of Certain Events. Except as disclosed in Schedule 3.23, since June 30, 1999, the Company has not:

(a) sold, leased, transferred or disposed of any of its assets used, held for use or useful in conduct of the Business except in the Ordinary Course of Business;

(b) entered into any Contract relating to the Business except in the Ordinary Course of Business;

(c) terminated, accelerated or modified any Contract relating to the Business to which it is or was a party or by which it is or was bound, or has agreed to do so, or has received Notice that another party had done so or intends to do so, except in the case of Contracts which expired in accordance with their terms or which were terminated in the Ordinary Course of Business;

(d) imposed or permitted any Lien on any of its assets relating to or used, held for use or useful in the conduct of the Business;

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(e) delayed or postponed (beyond its normal practice) payment of its vendor accounts payable and other Liabilities;

(f) cancelled, compromised, waived or released any claim or right outside of the Ordinary Course of Business;

(g) experienced any material damage, destruction or loss to any of its assets used, held for use or useful in conduct of the Business (whether or not covered by insurance);

(h) changed the base compensation or other terms of employment of any of its employees;

(i) paid a bonus to any employee;

(j) adopted a new Employee Benefit Plan, terminated any existing plan or increased the benefits under or otherwise modified any existing plan except as contemplated in this Agreement;

(k) amended its Organizational Documents;

(l) issued, sold, redeemed or repurchased any shares of capital stock or other securities or retired any indebtedness; (m) granted any Options;

(n) declared or paid any dividends or made any other distributions in respect of its capital stock;

(o) made, or guaranteed, any loans or advances to another Person or made any investment or commitment therefor in any Person;

(p) made any capital expenditures in excess of $100,000 in the aggregate;

(q) made any change in its accounting principles or methods;

(r) entered into any Contract to do any of the matters described in the preceding clauses (a)-(q); or

(s) entered into or engaged in any other transaction or activity outside of the Ordinary Course of Business, or suffered the occurrence or any other event involving the Business occurring outside of the Ordinary Course of Business.

3.24 Environmental Matters. Except as disclosed in Schedule 3.24:

(a) The Company is, and has been at all times, in compliance in all material respects with all applicable Environmental Laws and Occupational Safety and Health Laws, and the Company is not aware of any facts, circumstances or conditions which would prevent material compliance in the future.

(b) Neither the Company nor any other Person for whose conduct the Company may be held responsible has received, and to the Company's Knowledge, there is no basis to expect the Company or any other Person for whose conduct the Company may be held responsible to receive, any Notice from any Governmental Authority, any private citizen acting in the public interest, the current or prior owner or operator of any current or former Facility, or any other Person, of (i) any actual or potential violation or failure to comply with any of the Environmental Laws or (ii) any actual or potential Cleanup Liability or other Environmental Liability.

(c) To the Company's Knowledge, neither the Company nor any other Person for whose conduct the Company may be held responsible has any Cleanup Liability or other Environmental Liability in respect of any current or former Facility, any property adjoining any current or former Facility, or any assets used or useful in the conduct of the Business, and no such current or, to the Company's Knowledge, former Facility contains or contained (i) any underground storage tanks, (ii) any landfills, dumps or surface impoundments, (iii) any asbestos-containing materials, or (iv) any polychlorinated biphenyls.

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(d) Except for Hazardous Materials stored or used in the Ordinary Course of Business and in compliance in all material respects with all applicable Environmental Laws, there are no Hazardous Materials at any current Facility (whether or not in storage tanks or other containers). To the Company's Knowledge, except for Hazardous Activities conducted in the Ordinary Course of Business and in compliance in all material respects with all applicable Environmental Laws, neither the Company nor any other Person for whose conduct the Company may be held responsible has permitted or conducted any Hazardous Activity at any current or former Facility.

(e) To the Company's Knowledge, there has been no Release or threatened Release by the Company or any other Person of any Hazardous Materials at or from any current or former Facility or any property adjoining any current or former Facility.

None of the exceptions on Schedule 3.24 are reasonably likely to result in the Company incurring costs and liabilities which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has delivered copies to Buyer and Subsidiary of all reports, studies, analyses, tests or monitoring possessed or initiated by the Company relating to Hazardous Materials or Hazardous Activities at any current, or former, Facility or compliance by the Company, or any other Person for whose conduct the Company may be held responsible, with applicable Environmental Laws.

3.25 Employees. Schedule 3.25 of the Disclosure Schedule contains a complete and accurate list of the following information for the employees of the Company, including employees on leave of absence: name; job title; date of hire; current base compensation; changes in base compensation since January 1, 1998; bonus targets; accrual rate on vacation; visa type (if any) as reflected on the Form I-9 in the Company's files; and accrued flex time-off hours. The Company has complied with all applicable documentation requirements of the United States Immigration and Naturalization Service with respect to its employees. To the Company's Knowledge, no employee of the Company is a party to or is otherwise bound by any Contract or arrangement, including any confidentiality, noncompetition or proprietary rights agreement, that would limit or restrict the scope of his or her duties as an employee of the Surviving Corporation following Closing. All employees of the Company have the legal right to work in the country in which they are employed.

3.26 Labor Relations. The Company is not and has never been a party to any collective bargaining agreement or other labor Contract. The Company is not experiencing, and has not experienced at any time, and, to the Company's Knowledge, there is no basis to expect the Company to experience: (i) any strike, slowdown, picketing or work stoppage by or lockout of its employees;
(ii) any Suit relating to the alleged violation of any Law or Order relating to labor relations or employment matters (including any charge or complaint filed by an employee or union with the U.S. National Labor Relations Board or Equal Employment Opportunity Commission or any other comparable Governmental Authority); (iii) any other labor or employment dispute; or (iv) any activity to organize or establish a collective bargaining unit, trade union or employee association.

3.27 Certain Payments. Neither the Company nor any officer, director, employee or agent of the Company, or any other Person associated with or acting for or on behalf of the Company, has directly or indirectly made or paid any contribution, gift, bribe, rebate, payoff, kickback or other payment (whether in money, property or services or any other form) to any Person (i) in order to gain or pay for favorable treatment in obtaining business or special concessions or (ii) in violation of any Law. Without limiting the generality of the foregoing, neither the Company nor any of the other Persons specified above has taken any action in violation of the Foreign Corrupt Practices Act.

3.28 Related Persons. Except as disclosed in Schedule 3.28, no Related Party has or had a direct or indirect financial or other interest in (i) any assets of the Company, (ii) any transaction with the Company or (iii) to the Company's Knowledge, any Person who has or had business dealings with the Company (other than as a stockholder owning less than 1% of the outstanding stock of any such Person whose stock is traded on a national securities exchange).

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3.29 Broker's Fee. Except for any amounts due to SG Cowen Securities Corporation, the Company has no Liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement. A true and complete copy of the engagement agreement between the Company and SG Cowen Securities Corporation has been provided to Buyer.

3.30 Year 2000 Compliance.

(a) Based on a comprehensive assessment of the Systems that are used or relied on by the Company in the conduct of its business, the Company does not know of any such System that will malfunction, will cease to function, will generate incorrect data or will provide incorrect results when processing, providing and/or receiving (i) date-related data in, into or between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth or twenty-first centuries.

(b) No product or service that is or has been sold, licensed, rendered or otherwise provided or offered by the Company in the conduct of its business will cease to function, will generate incorrect data or will produce incorrect results when processing, providing or receiving (i) date-related data in, into or between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth or twenty-first centuries; and, to the knowledge of the Company, the Company is not and will not be subject to claims or liabilities arising from any such malfunction, cessation of function, generation of incorrect data or production of incorrect results.

(c) Based on a comprehensive inquiry of all suppliers and service providers of the Company, the Company does not know of any inability on the part of any such supplier or service provider to timely ensure that its own (and its material suppliers' and service providers') Systems continue to operate without malfunction, to operate without ceasing to function, to generate correct data and to produce correct results when processing, providing and/or receiving (i) date-related data in, into and between the twentieth and twenty-first centuries and (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries.

(d) Schedule 3.30(d) contains an accurate statement of the Company's Year 2000 Compliance Program, and (without limiting the generality of the foregoing) the Company has completed all program steps and taken all measures described in the Process Compliance Timetable and Frequently Asked Questions thereof.

(e) For the purposes of this Agreement, "Systems" means, with respect to a Person, any and all material hardware, software and firmware used by the Company in the course of its business, including (i) any and all source and object code; (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise; (iii) billing, reporting and other management information systems; (iv) all descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing; (v) all content contained on any Internet site(s) maintained by such Person or any of its subsidiaries; and
(vi) all documentation, including user manuals and training materials, relating to any of the foregoing.

3.31 Product Recalls.

(a) (i) Except as set forth on Schedule 3.31(a)(i), the Company has not received any written notice, demand, claim, or inquiry and there is no action, suit, hearing, proceeding or investigation, of a civil, criminal or administrative nature (collectively, "Notices") pending, or to the Company's knowledge, threatened before any Governmental Authority in which a Product is alleged to have a Defect or relating to or resulting from any alleged failure to warn or from any alleged breach of express or implied warranties or representations, nor, to the Company's knowledge, is there any valid basis for any such demand, claim, action, suit, inquiry, hearing, proceeding, notice of violation or investigation; (ii) no Notice would, if adversely determined, have, individually or in the aggregate, a Material Adverse Effect on the Company; (iii) except as set forth on Schedule 3.31(a)(iii), there has not been any recall, rework, retrofit or post-sale general consumer warning since December 31, 1996 (collectively, "Recalls") of any Product, or, to the knowledge of the Company, any investigation or

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consideration of or decision made by any Person concerning whether to undertake or not to undertake any Recalls and the Company has received no Notices from any Governmental Entity or any other Person in respect of the foregoing; and (iv) to the knowledge of the Company, there are currently no material defects in design, manufacturing, materials or workmanship, including, any failure to warn, or any breach of express or implied warranties or representations, which involve any Product that accounts for a material portion of the Company's sales.

(b) As used herein, (i) "Defect" means a defect or impurity of any kind, whether in design, manufacture, processing, or otherwise, including, any dangerous propensity associated with any reasonably foreseeable use of a Product, or the failure to warn of the existence of any defect, impurity or dangerous propensity; and (ii) "Product" means any product designed, manufactured, shipped, sold, marketed, distributed and/or otherwise introduced into the stream of commerce by or on behalf of the Company.

3.32 Takeover Statutes. The Company has taken all action required to be taken by it in order to exempt this Agreement and the transactions contemplated hereby, including the Voting Agreement, and this Agreement and the transactions contemplated hereby are exempt, from the requirements of any "moratorium," "control share," "fair price," "affiliate transaction," "business combination" or other anti-takeover Laws of Illinois (collectively, "Takeover Statutes").
Section 5/11.75 of the Illinois Business Corporation Act is not applicable, by virtue of paragraph (b)(4) thereof, to the Company or the transactions contemplated hereby.

3.33 Information Supplied. None of the information supplied or to be supplied by the Company for inclusion in (i) the registration statement on Form S-4 to be filed with the SEC by Buyer in connection with the issuance of Buyer Common Stock as required by the terms of this Agreement pursuant to the Merger (the "S-4"), at the time the S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the proxy statement relating to the Company Shareholder Meeting to be held in connection with the Merger (the "Proxy Statement") will, at the date mailed to shareholders and at the time of the Company Shareholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event in respect of the Company, its officers and directors or any of its subsidiaries should occur which is required to be described in an amendment of, or a supplement to, the S-4, the Company shall promptly so advise Buyer and such event shall be so described, and the Company shall cooperate in the prompt filing of such amendment or supplement with the SEC and, as required by Law, shall promptly disseminate such amendment or supplement to the shareholders of the Company.

3.34 Accounting Matters. Neither the Company nor, to the Company's knowledge, any of its Affiliates or Shareholders, has taken or agreed to take any action or is aware of any fact or circumstance that would be reasonably likely to prevent the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations.

3.35 Subsidies. Except as disclosed on Schedule 3.35, no grants, subsidies or similar arrangements exist directly or indirectly between the Company, on the one hand, and any domestic or foreign Governmental Authority or any other Person, on the other hand.

3.36 Disclosure.

(a) As qualified or limited by the exceptions in the Disclosure Schedule, and solely as so qualified or limited, no statement in this Article 3 is untrue or omits to state any material fact necessary to make the statement, in light of the circumstances in which made, not misleading. When read in conjunction with this Article 3, no statement in the Disclosure Schedule is untrue or omits to state any material fact necessary to make any statement in this Article 3 or in the Disclosure Schedule itself, in light of the circumstances in which made, not misleading.

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(b) No Notice given pursuant to Section 5.8 will contain an untrue statement or omit to state a material fact necessary to make any statement in the Notice, in light of the circumstances in which made, not misleading.

(c) All copies of documents delivered by the Company to Buyer and Subsidiary under this Agreement have been or will be true and complete copies of the originals.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER AND SUBSIDIARY

In order to induce the Company to enter into this Agreement, Buyer and Subsidiary represent and warrant to the Company as follows:

4.1 Organization. Each of Buyer and Subsidiary is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and Illinois, respectively, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform its obligations under all Contracts. Buyer directly owns all of the issued and outstanding shares of capital stock of the Subsidiary.

4.2 Authority. Each of Buyer and Subsidiary has the power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by each of Buyer and Subsidiary have been duly authorized by all necessary action required by its Organizational Documents and applicable Law.

4.3 Enforceability. This Agreement constitutes the legal, valid and binding obligation of each of Buyer and Subsidiary, enforceable against them in accordance with its terms except as enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

4.4 No Violation. The execution, delivery and performance of this Agreement by each of Buyer and Subsidiary will not, either directly or indirectly (and with or without Notice or the passage of time or both): (i) violate or conflict with its Organizational Documents; (ii) result in a breach of or default under any Contract to which it is a party or by which it is bound; or (iii) violate or conflict with any Law or Order to which it is subject.

4.5 No Consent Required. Except as required by HSR, the execution, delivery and performance of this Agreement by each of Buyer and Subsidiary do not require any Notice to, filing with, Permit from or other Consent of any Governmental Authority or other Person.

4.6 Broker's Fee. Neither Buyer nor Subsidiary has any Liability or obligation to pay any fees or commissions to any broker, finder or agent acting with respect to the transactions contemplated by this Agreement.

4.7 SEC Reports; Financial Statements. Buyer has filed all required forms, reports and documents with the SEC since December 31, 1997, each of which has complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder, each as in effect on the dates such forms, reports, and documents were filed. Buyer has heretofore made available to the Company, in the form filed with the SEC (including, any amendments thereto), (i) its Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998, (ii) all definitive proxy statements relating to Buyer's meetings of stockholders (whether annual or special) held since December 31, 1997 and (iii) all other reports or registration statements filed by Buyer with the SEC since December 31, 1997 (the "Buyer SEC Reports"). None of such Buyer SEC Reports, including, any financial statements or schedules included or incorporated by reference therein, contained, when filed, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the

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circumstances under which they were made, not misleading. The consolidated financial statements of Buyer included in the Buyer SEC Reports complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC in respect thereof and fairly present, in conformity with GAAP (except as may be indicated in the notes thereto), the consolidated financial position of Buyer and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments). Except as and to the extent disclosed in the Buyer SEC Reports, since December 31, 1998, there has not been any event, occurrence or development which does or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Buyer.

4.8 Information Supplied. None of the information supplied or to be supplied by Buyer or Subsidiary for inclusion or incorporation by reference in
(i) the S-4 will, at the time the S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) the Proxy Statement will, at the date mailed to shareholders of the Company and at the time of the Company Shareholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event in respect of Buyer, its officers and directors, or any of its subsidiaries should occur which is required to be described in an amendment of, or a supplement to, the S-4 or the Proxy Statement, Buyer shall promptly so advise the Company and such event shall be so described, and any such amendment or supplement to the S-4 (which the Company shall have a reasonable opportunity to review) shall be promptly filed with the SEC. The S-4 will comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations thereunder.

4.9 Accounting Matters. Neither Buyer nor, to Buyer's Knowledge, any of its Affiliates, has taken or agreed to take any action or is aware of any fact or circumstance that would be reasonably likely to prevent the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations.

ARTICLE 5

EVENTS PRIOR TO CLOSING

5.1 Conduct of Business. Pending Closing:

(a) the Company shall conduct the Business only in the Ordinary Course of Business and with no less diligence and effort than would be applied in the absence of this Agreement, use its best efforts to maintain the Business intact and to preserve its goodwill and advantageous relationships with customers, distributors, employees, suppliers and other Persons having business dealings with the Business;

(b) the Company shall not take any affirmative action that results in the occurrence of an event described in Section 3.23 or fail to take any reasonable action within its control that would avoid the occurrence of an event described in Section 3.23; and

(c) the Company will not take any action that would prevent or impede the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations.

5.2 Preparation of the S-4 and the Proxy Statement. Buyer and the Company will, as promptly as practicable, jointly prepare the Proxy Statement in connection with the vote of the shareholders of the Company in respect of the Merger. Buyer will, as promptly as practicable, prepare and file with the SEC the S-4 in connection with the registration under the Securities Act of the shares of Buyer Common Stock issuable pursuant with the Merger. Buyer and the Company will, and will cause their accountants and lawyers to, use all reasonable best efforts to have or cause the S-4 declared effective as promptly as

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practicable after filing with the SEC, including causing their accountants to deliver necessary or required instruments such as opinions, consents and certificates, and will take any other action required or necessary to be taken under federal or state securities Laws or otherwise in connection with the registration process (other than qualifying to do business in any jurisdiction which it is not now so qualified or to file a general consent to service of process in any jurisdiction). Buyer shall, as promptly as practicable after the receipt thereof, provide to the Company copies of any written comments and advise the Company of any oral comments, in respect of the S-4 received from the staff of the SEC. The Company will provide Buyer with a reasonable opportunity to review and comment on any amendment or supplement to the Proxy Statement. The Company will use its reasonable best efforts to cause the Proxy Statement to be mailed to its shareholders at the earliest practicable date following effectiveness of the S-4.

5.3 Letters of Accountants.

(a) The Company shall use reasonable best efforts to cause to be delivered to Buyer a letter of Arthur Andersen LLP, the Company's independent auditors, dated a date within two business days before the date on which the S-4 shall become effective and addressed to Buyer, in form and substance reasonably satisfactory to Buyer and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the S-4.

(b) Buyer shall use reasonable best efforts to cause to be delivered to the Company a letter of Ernst & Young LLP, Buyer's independent auditors, dated a date within two business days before the date on which the S-4 shall become effective and addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the S-4.

5.4 Shareholder Meeting. The Company shall take all lawful action to (i) cause a special meeting of its shareholders (the "Company Shareholder Meeting") to be duly called and held as soon as practicable after the date of this Agreement for the purpose of voting on the approval and adoption of this Agreement and (ii) solicit proxies from its shareholders to obtain the Shareholder Approval. The Company board of directors shall recommend approval and adoption of this Agreement and the Merger by the Company's shareholders and, except as permitted by Section 5.9(b), shall not withdraw, amend, or modify in a manner adverse to Buyer such recommendation (or announce publicly its intention to do so). Notwithstanding the foregoing, regardless of whether the Company board of directors has withdrawn, amended or modified its recommendation that its shareholders approve and adopt this Agreement, unless this Agreement has been terminated pursuant to the provisions of Article 8, the Company shall be required to hold the Company Shareholder Meeting.

5.5 Access to Information. Pending Closing, the Company shall (i) give Buyer and Subsidiary and their representatives (including counsel, financial advisors and accountants) access during normal business hours (but without unreasonable interference with operations) to the Facilities of the Company and to the Company's Books and Records and other documents and (ii) make the officers and employees of the Company available for questioning. The Company shall furnish Buyer and Subsidiary and their representatives with all information and copies of all documents concerning the Company, the Business and the Shares, Options and Warrant that Buyer and Subsidiary and their representatives reasonably request. Neither Buyer nor Subsidiary shall contact any of the Company's customers without the Company's prior permission, provided that the Company agrees to cooperate, if Buyer so requests, in arranging and participating in joint meetings with Company customers. The Company shall furnish to Buyer and Subsidiary at the earliest time they are available (i) such monthly financial statements and data routinely prepared by the Company (ii) at the earliest time they are available, such quarterly and annual financial statements routinely prepared by the Company.

5.6 Reasonable Best Efforts. (a) Subject to the terms and conditions of this Agreement, each party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the Merger and the other transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, each party hereto shall make an appropriate filing of any notification and report forms under HSR in respect of

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the transactions contemplated hereby as promptly as practicable and in any event within ten business days of the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant under HSR and use its reasonable best efforts to take, or cause to be taken, all other actions consistent with this Section 5.6 necessary to cause the expiration or termination of the applicable waiting periods under HSR as soon as practicable.

(b) Each of Buyer and the Company shall, in connection with the efforts referenced in Section 5.6(a) to obtain all requisite approvals and authorizations for the transactions contemplated by this Agreement under HSR, or any other antitrust Law, use its reasonable best efforts to (i) cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party; (ii) keep the other party informed in all material respects of any material communication received by such party from, or given by such party to, the Federal Trade Commission ("FTC"), the Antitrust Division of the U.S. Department of Justice ("DOJ") or any other Governmental Authority and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated hereby; and (iii) permit the other party to review any material communication given by it to, and consult with each other in advance of any meeting or conference with FTC or DOJ or any such other Governmental Authority or, in connection with any proceeding by a private party, with any other Person, and to the extent permitted by the FTC, the DOJ or such other applicable Governmental Authority or other Person, give the other party the opportunity to attend and participate in such meetings and conferences.

(c) In furtherance and not in limitation of the covenants of the parties contained in Sections 5.6(a) and (b), each of Buyer and the Company shall use its reasonable best efforts to resolve such objections, if any, as may be asserted by a Governmental Authority or other Person in respect of the transactions contemplated hereby under any Law. In connection with the foregoing, if any administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any antitrust Law, each of Buyer and the Company shall cooperate in all respects with each other and use its respective reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction, or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, nothing in this Section 5.6 shall (i) limit a party's right to terminate this Agreement pursuant to Article 8 so long as such party has up to then complied in all material respects with its obligations under this Section 5.6, or (ii) require Buyer to dispose or hold separate any part of its or the Company's business or operations (or a combination of Buyer's and the Company's business or operations), or comply with any other material restriction affecting its business or operations.

(d) The Company agrees that in connection with any litigation which may be brought against the Company or its directors relating to the transactions contemplated hereby, the Company will keep Buyer, and any counsel which Buyer may retain at its own expense, informed of the course of such litigation, to the extent Buyer is not otherwise a party thereto. The Company agrees that it will consult with Buyer prior to entering into any settlement or compromise of any such litigation, and that no such settlement or compromise will be entered into without Buyer's prior written consent, which consent shall not be unreasonably withheld.

5.7 Other Filings. As promptly as practicable after the date of this Agreement, the Company shall give each Notice, make each filing and obtain each Permit or other Consent listed on Schedule 3.6, if any. To the extent that the cooperation of Buyer and Subsidiary is necessary or, in the Company's reasonable judgment, desirable, Buyer and Subsidiary shall cooperate with the Company in regard to all Notices, filings, Permits and other Consents listed on Schedule 3.6.

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5.8 Notice of Developments. Pending Closing, the Company shall promptly give Notice to Buyer and Subsidiary of: (i) any fact or circumstance of which the Company becomes aware that causes or constitutes an inaccuracy in or breach of any of the Company's representations and warranties in Article 3 on the date of this Agreement; (ii) any fact or circumstance of which the Company becomes aware that would cause or constitute an inaccuracy in or breach of any of the Company's representations and warranties in Article 5 if its representations and warranties were made on and as of the date of occurrence or discovery of the fact or circumstance; (iii) any breach of or default under Section 5.1 or any of the Company's other obligations in this Article 5; or (iv) the occurrence of any event that may make satisfaction of any of the conditions in Section 6.1 or 6.2 impossible or unlikely; provided, however, that the delivery of any notice pursuant to this Section 5.8 shall not cure such breach or non-compliance or limit or otherwise affect the rights, obligations or remedies available hereunder to Buyer and Subsidiary.

5.9 Acquisition Proposals.

(a) The Company will not, nor will it authorize or permit any officer, director or employee of or any investment banker, attorney, accountant or other advisor or representative of, the Company to, directly or indirectly,
(i) solicit, initiate or encourage the submission of any Acquisition Proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any Person any information in respect of, or take any other action to facilitate, any Acquisition Proposal or any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal. The Company shall notify Buyer of any Acquisition Proposal (including the material terms and conditions thereof and the identity of the Person making it) as promptly as practicable after its receipt thereof, and shall provide Buyer with a copy of any written Acquisition Proposal or amendments or supplements thereto, and shall thereafter inform Buyer on a prompt basis of the status of any discussions or negotiations with such a third party, and any material changes to the terms and conditions of such Acquisition Proposal, and shall promptly give Buyer a copy of any information delivered to such Person which has not previously been reviewed by Buyer. Immediately after the execution and delivery of this Agreement, the Company will, and will use its reasonable best efforts to cause its affiliates and their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents and representatives to, cease and terminate any existing activities, discussions or negotiations with any parties conducted heretofore in respect of any possible Acquisition Proposal. The Company shall take all necessary steps to promptly inform the individuals or entities referred to in the first sentence of this Section 5.9 of the obligations undertaken in this Section 5.9. "Acquisition Proposal" means an inquiry, offer or proposal regarding any of the following (other than the transactions contemplated by this Agreement) involving the Company: (w) any merger, consolidation, share exchange, recapitalization, business combination or other similar transaction; (x) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or substantially all the assets of the Company in a single transaction or series of related transactions; (y) any tender offer or exchange offer for 20% or more of the outstanding Shares or the filing of a registration statement under the Securities Act in connection therewith; or (z) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

(b) The Company board of directors will not withdraw or modify, or propose to withdraw or modify, in a manner adverse to Buyer, its approval or recommendation of this Agreement or the Merger unless the Company board of directors, after consultation with independent legal counsel, determines in good faith that such action is necessary to avoid a breach by the Company board of directors of its fiduciary duties to the Company's shareholders under applicable Law. Nothing contained in this Section 5.9(b) shall prohibit the Company from making any disclosure to the Company's shareholders which, in the good faith reasonable judgment of the Company board of directors, after consultation with independent legal counsel, is required under applicable Law; provided, that except as otherwise permitted in this Section 5.9(b), the Company may not withdraw or modify, or propose to withdraw or modify, its position with respect to the Merger or approve or recommend, or propose to approve or recommend, an Acquisition Proposal. Notwithstanding anything contained in this Agreement to the contrary, any action by the Company board of directors permitted

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by, and taken in accordance with, this Section 5.9(b) shall not constitute a breach of this Agreement by the Company. Nothing in this Section 5.9(b) shall (i) permit the Company to terminate this Agreement (except as provided in Article 8) or (ii) affect any other obligations of the Company under this Agreement.

5.10 Public Announcements. Each of Buyer, Subsidiary and the Company will consult with one another before issuing any press release or otherwise making any public statements in respect of the transactions contemplated by this Agreement, including the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law or by obligations pursuant to any listing agreement with the NYSE, as determined by Buyer, Subsidiary, or the Company, as the case may be.

5.11 Tax-Free Reorganization Treatment. The parties hereto intend that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Each of the parties hereto shall use its reasonable best efforts to cause the Merger to so qualify. The Company and Buyer will provide or cause to be provided to Weil, Gotshal & Manges LLP and Johnson and Colmar all representation letters described in Section 6.2(f) and 6.3(c).

5.12 Employee Matters.

(a) Buyer will cause the Surviving Corporation to honor the obligations of the Company or any of its subsidiaries under the provisions of all Employee Benefit Plans and employee arrangements, subject to Buyer's right to amend or terminate any such benefit plan or employee arrangement in accordance with its terms. After the Effective Time, the employees of the Company will be eligible to participate in the Company's Employee Benefit Plans or, if so determined by Buyer, Buyer's applicable Employee Benefit Plans, as such plans may be in effect from time to time, and at Buyer's sole discretion, will become employees of Buyer. At the Buyer's sole discretion and with respect to each such employee of the Company, service with the Company or any of its subsidiaries may be counted for purposes of determining periods of eligibility to participate or to vest in benefits under any applicable Employee Benefit Plan of Buyer. At the Buyer's sole discretion, administrative functions, including but not limited to payroll processing, may be transferred to processors of the Buyer's choosing.

(b) The Company shall, not less than five days prior to the scheduled Closing Date, terminate its 401(k) retirement plan, effective immediately prior to the Effective Time.

5.13 Affiliate Letters. Section 5.13 of the Disclosure Schedule sets forth a list of all Persons who are, and all Persons who to the Company's knowledge will be at the Closing Date, "affiliates" of the Company for purposes of Rule 145 under the Securities Act. The Company will cause such list to be updated promptly through the Closing Date. Not later than 45 days prior to the date of the Company Shareholder Meeting, the Company shall cause its "affiliates" to deliver to Buyer a Company Affiliate Agreement substantially in the form attached as EXHIBIT D.

5.14 Fees and Expenses. If the Merger is consummated, the Surviving Corporation shall pay the amounts due from the Company to SG Cowen Securities Corporation and shall also pay the legal and accounting fees and expenses of the Company in connection with the Merger (the total of which amounts shall not exceed $4,700,000). If the Merger is not consummated, all Expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such Expenses; provided, however, whether or not the Merger is consummated, (a) expenses incurred in connection with the filing, printing and mailing of the Proxy Statement and the S-4 shall be shared equally by the Company and Buyer, (b) the filing fees required under the HSR shall be shared equally by the Company and Buyer and (c) if applicable, as provided in
Section 8.5. As used in this Agreement, "Expenses" includes all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by a party or on its behalf in connection with, or related to, the authorization, preparation, negotiation, execution and performance of this Agreement and the transactions contemplated hereby, including the preparation, filing,

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printing and mailing of the Proxy Statement and the S-4 and the solicitation of shareholder approvals and all other matters related to the transactions contemplated hereby.

5.15 Listing of Stock. Buyer shall use its reasonable best efforts to cause the shares of Buyer Common Stock to be issued in connection with the Merger to be approved for listing on the NYSE on or prior to the Closing Date, subject to official notice of issuance.

5.16 Comdisco Release. As soon as practicable following the date of this Agreement, and in any event prior to the Closing Date, the Company shall (i) secure from Comdisco Ventures releases of all liens encumbering the intellectual property or other assets of the Company and reassignments to the Company of any rights in the intellectual property or other assets of the Company previously assigned by the Company to Comdisco Ventures and (ii) will file appropriate documents evidencing such releases and reassignments with the appropriate Governmental Authorities. Such releases and reassignments shall include a statement by Comdisco Ventures that it has not conferred any rights (including ownership or by license) in the intellectual property or other assets of the Company to any third party.

ARTICLE 6

CONDITIONS TO CLOSING

6.1 Conditions of Each Party. The respective obligations of each party to consummate the Merger and to take the other actions that they are respectively required to take at Closing are subject to the satisfaction or written waiver by each of the parties of each of the following conditions prior to or at Closing:

(a) this Agreement and the Merger shall have received Shareholder Approval;

(b) all applicable waiting periods under HSR shall have expired or otherwise been terminated;

(c) since the date of this Agreement, no Suit shall have been initiated or Threatened that challenges or seeks damages or other relief in connection with the Merger or that could have the effect of preventing, delaying, making illegal or otherwise interfering with the Merger;

(d) the S-4 shall have been declared effective by the SEC and shall be effective at the Effective Time, and no stop order suspending effectiveness shall have been issued; no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been initiated and be continuing; and all necessary approvals under state securities Laws or the Securities Act or Exchange Act relating to the issuance or trading of the Buyer Common Stock shall have been received; and

(e) the Buyer Common Stock required to be issued hereunder shall have been approved for listing on the NYSE, subject only to official notice of issuance.

6.2 Conditions of Buyer and Subsidiary. The respective obligations of Buyer and Subsidiary to consummate the Merger and to take the other actions that they are respectively required to take at Closing are subject to the satisfaction of each of the following conditions prior to or at Closing:

(a) the Company's representations and warranties in Article 3 shall be true in all material respects on the Closing Date as if they were made at and as of the Closing;

(b) the Company shall have executed and delivered all of the documents and instruments that it is required to execute and deliver or enter into prior to or at Closing, and shall have performed, complied with, or satisfied in all material respects all of its other obligations, agreements and conditions under this Agreement that it is required to perform, comply with or satisfy prior to or at Closing;

(c) each Permit or other Consent listed on Schedule 3.6, if any, shall have been obtained and is in full force;

(d) the Company Legal Opinion has been rendered and delivered to Buyer;

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(e) holders of Shares representing no more than five percent of the outstanding Common Stock, assuming for such purpose conversion of all outstanding Preferred Stock, shall have exercised and not withdrawn, forfeited or otherwise permitted to lapse appraisal, dissenter's or similar rights under applicable Law with respect to their Shares in connection with the Merger;

(f) Buyer and Subsidiary shall have received the opinion of Weil, Gotshal & Manges LLP, dated the Effective Time, to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The issuance of such opinion shall be conditioned on the receipt by such tax counsel of representation letters from each of Buyer, Subsidiary and the Company, in each case, in form and substance reasonably satisfactory to such counsel. Each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect;

(g) the Company shall have received and delivered to Buyer a letter from Arthur Andersen LLP dated as of the Closing Date, stating that the accounting of the Merger as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations is appropriate if the Merger is consummated as contemplated by this Agreement. Buyer shall have received a letter from Ernst & Young LLP, dated as of the Closing Date, stating that accounting of the Merger as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations is appropriate if the Merger is consummated as contemplated by this Agreement; and

(h) the Warrant shall have been exercised, and the Company shall have issued 30,833 shares of Common Stock to the holder thereof.

Buyer and Subsidiary may waive any condition specified in this Section 6.2 by a written waiver delivered to the Company at any time prior to or at Closing.

6.3 Conditions of the Company. The obligation of the Company to consummate the Merger and to take the other actions that it is required to take at Closing is subject to the satisfaction of each of the following conditions prior to or at Closing:

(a) the representations and warranties of Buyer and Subsidiary in Article 4 shall be true and correct in any material respects on the Closing Date as if they were made at and as of the Closing;

(b) the Buyer Legal Opinion shall have been rendered and delivered to the Company;

(c) the Company shall have received the opinion of Johnson and Colmar, dated the Effective Time, to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The issuance of such opinion shall be conditioned on the receipt by such tax counsel of representation letters from each of Buyer, Subsidiary and the Company, in each case, in form and substance reasonably satisfactory to such counsel. Each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect; and

(d) Buyer and Subsidiary shall have executed and delivered all of the documents and instruments that they are required to execute and deliver or enter into prior to or at Closing, and shall have performed, complied with or satisfied in all material respects all of their other obligations, agreements and conditions under this Agreement that they are required to perform, comply with or satisfy prior to or at Closing.

The Company may waive any condition specified in this Section 6.3 by a written waiver delivered to Buyer and Subsidiary at any time prior to or at Closing.

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ARTICLE 7

SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; ESCROW PROVISIONS

7.1 Survival of Representations, Warranties, Covenants and Agreements. Notwithstanding any right of Buyer, Subsidiary or the Company (whether or not exercised) to investigate the affairs of Buyer, Subsidiary or the Company, each party shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other party contained in this Agreement or in any instrument required to be delivered hereunder; provided, however, that, except in the case of fraud (i.e., an intentional breach of a representation, warranty, covenant or agreement, but excluding any negligent or reckless breach), no reliance can be made on, or claim made in respect of, any representation, warranty, covenant or agreement specific compliance with which was waived in writing, including the waiver of any related closing condition contained in Article 6. The covenants and agreements of the Company, Buyer and Subsidiary contained in this Agreement or in any instrument delivered pursuant to this Agreement that by their terms apply or are to be performed in whole or in part after the Effective Time shall survive the Effective Time. The representations and warranties of the Company, Buyer and Subsidiary contained in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Merger and continue until the filing of Buyer's Annual Report on Form 10-K for the fiscal year ending December 31, 1999, except for the representations and warranties set forth in Sections 3.12, 3.15, 3.17, 3.19, 3.22, 3.24, 3.30, which shall continue until the first anniversary of the Closing Date (the "Expiration Date"). Each of the parties hereto agrees that, except for the representations and warranties contained in this Agreement, none of Buyer, Subsidiary or the Company has made any representations or warranties, and except for the representations and warranties contained in this Agreement, each of Buyer, Subsidiary and the Company acknowledges that no representations or warranties have been made by, and it has not relied upon any representations or warranties made by, any of the parties hereto or any of their respective officers, directors, employees, agents, financial and legal advisors or other representatives (collectively, "Representatives") with respect to this Agreement and the transactions contemplated hereby, and the documents and instruments referred to herein, notwithstanding the delivery or disclosure to such party or its Representatives of any documentation or other information with respect to any one or more of the foregoing. The inclusion of any entry on the Disclosure Schedule shall not constitute an admission by, or agreement of, the Company that such matter is material to the Company.

7.2 Escrow Provisions.

(a) Establishment of the Escrow Fund. "Escrow Amount" and "Escrow Fund" means the number of shares of Buyer Common Stock obtained by multiplying (i) the aggregate number of shares of Buyer Common Stock issuable by Buyer at the Effective Time to holders of Shares in accordance with Sections 2.4(c) by (ii) 5%. At the Effective Time, the Escrow Amount, without any act of any shareholder, will be deposited with Harris Trust and Savings Bank (the "Depositary Agent") (plus thereafter a proportionate share of any additional shares of Buyer Common Stock as may be issued upon any stock splits, stock dividends or recapitalizations effected by Buyer following the Effective Time). The Escrow Fund will be governed by the terms set forth herein and shall be maintained at Buyer's sole cost and expense. The portion of the Escrow Amount contributed on behalf of each Shareholder shall be in proportion to the aggregate number of shares of Buyer Common Stock to which such holder would otherwise be entitled under
Section 2.4(c). For Tax purposes, the Escrow Fund shall be treated as owned by the Shareholders.

(b) Recourse to the Escrow Fund. The Escrow Fund shall be available (and shall be the sole and exclusive remedy after the Effective Time) to compensate Buyer and the Surviving Corporation, and their respective officers, directors, employees, agents and affiliates, for any and all Losses (whether or not involving a Third Party Claim), incurred or sustained by Buyer or the Surviving Corporation, their respective officers, directors, employees, agents or affiliates, directly or indirectly, as a result of any inaccuracy or breach of any representation, warranty, covenant or agreement of the Company contained herein which survived the Effective Time in accordance with this Agreement;

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provided, however, that Buyer and the Surviving Corporation may not make any claims against the Escrow Fund unless the aggregate Losses incurred or sustained exceed $250,000 (at which such time claims may be made for all such Losses incurred or sustained in excess of such amount). The Shareholders shall not have any liability under this Agreement of any sort whatsoever in excess of the Escrow Fund. For purposes of this Agreement, "Losses" shall mean all losses, expenses (including reasonable attorneys' fees and expenses), damages, liabilities, fines, penalties, judgments, actions, claims and costs including any Tax imposed on any payment received from the Escrow Fund as well as Taxes resulting from the circumstances giving rise to the Loss.

(c) Escrow Period; Distribution of Escrow Fund upon Termination of Escrow Period. Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Effective Time and shall terminate at 5:00 p.m., Dallas Time, on the Expiration Date (the period of time from the Effective Time through and including the Expiration Date is referred to herein as the "Escrow Period"); and all shares of Buyer Common Stock remaining in the Escrow Fund shall be distributed as set forth in the last sentence of this Section 7.2(c); provided, however, that the Escrow Period shall not terminate with respect to such amount (or some portion thereof) that is necessary in the reasonable judgment of Buyer, subject to the objection of the Shareholder Representatives and the subsequent resolution of the matter in the manner as provided in Section 7.2(g) hereof, to satisfy any unsatisfied written claims under this Section 7.2 concerning facts and circumstances existing prior to the termination of such Escrow Period which claims are specified in any Officer's Certificate delivered to the Depositary Agent prior to termination of such Escrow Period. As soon as all such claims, if any, have been resolved, the Depositary Agent shall deliver to the Shareholders the remaining portion of the Escrow Fund not required to satisfy such claims. Deliveries of shares of Buyer Common Stock remaining in the Escrow Fund to the Shareholders pursuant to this Section 7.2(c) shall be made ratably in proportion to the respective contributions on their behalf to the Escrow Fund and Buyer shall use all its commercially reasonable efforts to have such shares delivered within five (5) business days of such resolution. In the case of any entitlement to a fractional share of Buyer Common Stock upon distribution, each such Shareholders shall receive in lieu thereof a cash payment equal
(i) such fractional part of a share of Buyer Common Stock multiplied by
(ii) the closing price on the NYSE (as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another nationally recognized source) for a share of Buyer Common Stock on the last trading day preceding such distribution date. Buyer shall make available to the Depositary Agent the funds necessary to make such payments in lieu of fractional shares, and in connection therewith, the Depositary Agent will deliver to Buyer the shares of Buyer Common Stock to which such payments relate.

(d) Protection of Escrow Fund. The Depositary Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and not as the property of Buyer and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. Any shares of Buyer Common Stock, or other securities which, by their terms, are or may be exercisable, convertible or exchangeable for or into Buyer Common Stock, that are issued or distributed by Buyer ("New Shares") in respect of Buyer Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund. New Shares issued in respect of shares of Buyer Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund, but shall be distributed to the record holders thereof. Cash dividends on Buyer Common Stock shall not be added to the Escrow Fund, but shall be distributed to the record holders of the Buyer Common Stock on the record date set for any such dividend. Each Shareholder shall have voting rights with respect to the shares of Buyer Common Stock contributed to the account of such Shareholder within the Escrow Fund (and on any voting securities added to the Escrow Fund in respect of such shares of Buyer Common Stock).

(e) Claims Upon Escrow Fund. Upon receipt by the Depositary Agent, at any time on or before the last day of the Escrow Period, but in each case prior to the expiration of the survival period for the applicable representation, warranty, covenant or agreement as set forth in Section 7.1, of an

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Officer's Certificate delivered by the Buyer: (A) stating that Buyer has paid or properly accrued or reasonably anticipates that it will have to pay or accrue Losses, directly or indirectly, as a result of any inaccuracy or breach of any representation, warranty, covenant or agreement of the Company contained herein, and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation or breach of warranty, agreement or covenant to which such item is related (including the specific provision breached), the Depositary Agent shall, subject to the provisions of Section 7.2(f) hereof, deliver to Buyer out of the Escrow Fund, as promptly as practicable, shares of Buyer Common Stock held in the Escrow Fund in an amount equal to such Losses. For the purposes of determining the number of shares of Buyer Common Stock to be delivered to Buyer out of the Escrow Fund pursuant to this Section 7.2(e), the shares of Buyer Common Stock shall be valued on a per share basis at the Average Buyer Stock Price.

(f) Objections to Claims. At the time of delivery by Buyer of any Officer's Certificate to the Depositary Agent, a duplicate copy of such certificate shall be delivered to the Shareholder Representatives and for a period of thirty (30) days after such delivery, the Depositary Agent shall make no delivery to Buyer of any Escrow Amounts pursuant to Section 7.2(e) hereof unless the Depositary Agent shall have received written authorization from the Shareholder Representatives to make such delivery. After the expiration of such thirty (30) day period, the Depositary Agent shall make delivery of shares of Buyer Common Stock from the Escrow Fund in accordance with Section 7.2(e) hereof, provided that no such payment or delivery may be made if the Shareholder Representatives shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Depositary Agent prior to the expiration of such thirty (30) day period.

(g) Resolution of Conflicts. In case the Shareholder Representatives shall object in writing to any claim or claims made in any Officer's Certificate, the Shareholder Representatives and Buyer shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Shareholder Representatives and Buyer should so agree, joint written instructions setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Depositary Agent. The Depositary Agent shall be entitled to rely on any such instructions and distribute shares of Buyer Common Stock from the Escrow Fund in accordance with the terms thereof. If no such agreement can be reached after good faith negotiation, either Buyer or the Shareholder Representatives may commence litigation or, upon written consent of Buyer and the Shareholder Representatives, binding arbitration to resolve the dispute.

7.3 Shareholder Representatives; Power of Attorney.

(a) Shareholder Representatives. In the event that the Merger is approved by the Shareholders, effective upon such vote, and without further act of any Shareholder, the Shareholder Representatives shall be appointed as agents and attorneys-in-fact, any two of which may take actions in such capacity without the joinder of the others, for each Shareholder (except such Shareholders, if any, as shall have perfected their dissenters' rights under Illinois Law), for and on behalf of Shareholders, to give and receive notices and communications, to authorize delivery to Buyer of shares of Buyer Common Stock from the Escrow Fund in satisfaction of claims by Buyer, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand litigation or arbitration and comply with orders and awards of courts and arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Shareholder Representatives for the accomplishment of the foregoing. Such agency may be changed by the Shareholders from time to time upon not less than thirty (30) days prior written notice to Buyer; provided, however, that the Shareholder Representatives may not be removed unless holders of a two-thirds interest in the Escrow Fund agree to such removal and to the identity of the substituted shareholder representatives. Any vacancy in the position of Shareholder Representative shall be filled by John Patience. No bond shall be required of the Shareholder Representatives, and the Shareholder Representatives shall not receive

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compensation for their services. Notices or communications to or from the Shareholder Representatives shall constitute notice to or from each of the Shareholders.

(b) Exculpation. The Shareholder Representatives shall not be liable for any act done or omitted hereunder as Shareholder Representatives while acting in good faith and in the exercise of reasonable judgment.

(c) Actions of the Shareholder Representatives. A decision, act, consent or instruction of any two of the Shareholder Representatives shall constitute a decision for all of the Shareholders for whom a portion of the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund, and shall be final, binding and conclusive upon each of such Shareholders, and the Depositary Agent and Buyer may rely upon any such decision, act, consent or instruction of the Shareholder Representatives as being the decision, act, consent or instruction of every such shareholder of the Company. The Depositary Agent and Buyer are hereby relieved from any liability to any Person for any acts done by them in accordance with such decision, act, consent or instruction of the Shareholder Representatives.

7.4 Third Party Claims. In the event Buyer or the Surviving Corporation receives written notice of a third-party claim (a "Third Party Claim") which Buyer reasonably expects may result in a demand against the Escrow Fund, Buyer shall provide the Shareholder Representatives with reasonably prompt written notice thereof. The Shareholder Representatives, as representative for the Shareholders, shall have the right to participate in or, by giving written notice to Buyer, to assume the defense of any Third Party Claim at the expense of the Escrow Fund and by counsel selected by the Shareholder Representatives (which counsel must be reasonably satisfactory to Buyer), and Buyer will cooperate in good faith (and shall be permitted to participate at Buyer's expense) in such defense; provided, however, that the Shareholder Representatives shall not be entitled to assume control of the defense of any Third Party Claim that (i) could reasonably be expected to have any impact on the ongoing operations or goodwill of the Surviving Corporation or Buyer or their intellectual property or (ii) could reasonably be expected to result in Losses in excess of the Escrow Fund. Buyer shall have the right in its sole discretion to settle any Third Party Claim contemplated by clause (i) or (ii) above; provided, however, that if Buyer settles any such Third Party Claim without the Shareholder Representatives' written consent (which consent shall not be unreasonably withheld or delayed), Buyer may not make a claim against the Escrow Fund with respect to the amount of Losses incurred by Buyer in such settlement unless the Shareholder Representatives unreasonably withheld or delayed such consent; provided, further, that the Shareholder Representatives may not settle any Third Party Claim without Buyer's written consent (which consent shall not be unreasonably withheld or delayed). In the event that the Shareholder Representatives have consented to any such settlement, the Shareholder Representatives shall have no power or authority to object under any provision of this Article 7 to the amount of any claim by Buyer against the Escrow Fund with respect to the amount of Losses incurred by Buyer in such settlement as consented to by the Shareholder Representatives.

7.5 Depositary Agent's Duties.

(a) Limitation on Duties of Depositary Agent. The Depositary Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Depositary Agent may receive after the date of this Agreement which are signed by an officer of Buyer and the Shareholder Representatives, and may rely and shall be protected in relying or refraining from acting, in good faith, on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Depositary Agent shall not be liable for any act done or omitted hereunder as Depositary Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith.

(b) Compliance with Orders. The Depositary Agent is hereby expressly authorized to comply with and obey orders of any court of law or Governmental Authority or regulatory authority, notwithstanding any notices, warnings or other communications from any party or any other Person to

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the contrary. In case the Depositary Agent obeys or complies with any such order, the Depositary Agent shall not be liable to any of the parties hereto or to any other Person by reason of such compliance, notwithstanding any such order being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction or proper authority.

(c) Limitations on Liability of Depositary Agent. The Depositary Agent shall not be liable: in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder; or for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Depositary Agent.

(d) Good Faith of Depositary Agent. In performing any duties under the Agreement, the Depositary Agent shall not be liable to any party for damages, losses or expenses, except for damages, losses or expenses attributable to the gross negligence or willful misconduct of the Depositary Agent. The Depositary Agent shall not incur any such liability for (i) any act or failure to act made or omitted in good faith, or (ii) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that the Depositary Agent shall in good faith believe to be genuine, nor will the Depositary Agent be liable or responsible for forgeries, fraud, impersonations or determining the scope of any representative authority. In addition, the Depositary Agent may consult with legal counsel in connection with the Depositary Agent's duties under this Agreement and shall be fully protected in any act taken, suffered or permitted by the Depositary Agent in good faith in accordance with the advice of counsel. The Depositary Agent is not responsible for determining and verifying the authority of any Person acting or purporting to act on behalf of any party to this Agreement.

(e) Non-responsibility of Depositary Agent. If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Depositary Agent will not be required to determine the controversy or to take any action regarding it. The Depositary Agent may hold all documents and shares of Buyer Common Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Depositary Agent's discretion, the Depositary Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Depositary Agent will not be liable for any damages. Furthermore, the Depositary Agent may at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Depositary Agent is authorized to deposit with the clerk of the court all documents and shares of Buyer Common Stock held in escrow, except all costs, expenses, charges and reasonable attorneys' fees incurred by the Depositary Agent due to the interpleader action and which Buyer and the Shareholder Representatives, on behalf of the Shareholders, jointly and severally agree to pay. Upon initiating such action, the Depositary Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement.

(f) Indemnification of Depositary Agent. Buyer agrees to indemnify and hold the Depositary Agent harmless against any and all Losses incurred by the Depositary Agent in connection with the performance of the Depositary Agent's duties under this Agreement, including but not limited to any litigation from this Agreement or involving its subject matter.

(g) Resignation of Depositary Agent. The Depositary Agent may resign at any time upon giving at least thirty (30) days' written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor Depositary Agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor Depositary Agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor Depositary Agent within such time, the Depositary Agent shall have the right to appoint a successor Depositary Agent authorized to do business in the State of New York. The successor Depositary Agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers and duties of the

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predecessor Depositary Agent as if originally named as Depositary Agent. Upon such succession, the original Depositary Agent shall be discharged from any further duties and liability under this Agreement.

(h) Fees. All fees of the Depositary Agent for performance of its duties hereunder shall be paid by Buyer. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Depositary Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Depositary Agent is made a party to, or intervenes in, any action or proceeding pertaining to the Escrow Fund or its subject matter, the Depositary Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorneys' fees and expenses occasioned by such default, delay, controversy or action or proceeding.

ARTICLE 8

TERMINATION, AMENDMENT AND WAIVER

8.1 Termination by Mutual Agreement. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the Shareholder Approval, by mutual written consent of the Company and Buyer by action of their respective boards of directors.

8.2 Termination by Either Buyer or the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by action of the board of directors of either Buyer or the Company if:

(a) the Merger shall not have been consummated by December 31, 1999, whether such date is before or after the date of the Shareholder Approval (the "Termination Date"); provided, however, that if any condition of Closing set forth in Section 6.1 that remains reasonably capable of satisfaction has not been fulfilled or waived prior to December 31, 1999, the Termination Date shall be automatically extended to February 28, 2000;

(b) the Shareholder Approval shall not have been obtained at the Company Shareholder Meeting or at any adjournment or postponement thereof; or

(c) any Law permanently restraining, enjoining or otherwise prohibiting consummation of the Merger shall become final and non-appealable (whether before or after the Shareholder Approval);

provided, however, that the right to terminate this Agreement pursuant to this Section 8.2 shall not be available to any party that has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of the Merger to be consummated.

8.3 Termination by the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the Shareholder Approval, by action of the Company board of directors if:

(a) there is a breach by Buyer or Subsidiary of any representation, warranty, covenant or agreement contained in this Agreement that cannot be cured and would cause a condition set forth in Section 6.3(a) or 6.3(b) to be incapable of being satisfied as of the Termination Date; or

(b) the actual Average Buyer Stock Price (determined without regard to clause (i) of the proviso to such definition (the "Minimum Price Proviso")) is less than the Minimum Average Buyer Stock Price and the Company gives written notice to Buyer during the 24 hour period following the calculation of the Average Buyer Stock (a "Company Termination Notice") that the Company elects to terminate this Agreement; provided, however, that Buyer shall have the right during the 24 hour period following receipt of a Company Termination Notice to give written notice to the Company (the "Top-Up Notice") that Buyer elects to waive the application of the Minimum Price Proviso in the calculation of the Average Buyer Stock Price, in which case the Minimum Price Proviso shall be

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disregarded in the calculation of the Average Buyer Stock Price for all purposes under this Agreement. Upon delivery of the Top-Up Notice, the Company Termination Notice shall be null and void.

8.4 Termination by Buyer. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by Buyer, if:

(a) there is a breach by the Company of any representation, warranty, covenant or agreement contained in this Agreement that cannot be cured and would cause a condition set forth in Section 6.2(a) or 6.2(b) to be incapable of being satisfied as of the Termination Date;

(b) the actual Average Buyer Stock Price (determined without regard to clause (ii) of the proviso to such definition (the "Maximum Price Proviso")) is greater than the Maximum Average Buyer Stock Price and Buyer gives written notice to the Company during the 24 hour period following the calculation of the Average Buyer Stock (a "Buyer Termination Notice") that Buyer elects to terminate this Agreement; provided, however, that the Company shall have the right during the 24 hour period following receipt of a Buyer Termination Notice to give written notice to Buyer (the "Reduction Notice") that the Company elects to waive the application of the Maximum Price Proviso in the calculation of the Average Buyer Stock Price, in which case the Maximum Price Proviso shall be disregarded in the calculation of the Average Buyer Stock Price for all purposes under this Agreement. Upon delivery of the Reduction Notice, the Buyer Termination Notice shall be null and void; or

(c) the condition regarding appraisal rights set forth in Section 6.2(e) is not satisfied.

8.5 Effect of Termination and Abandonment.

(a) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article 8, this Agreement (other than this
Section 8.5, Section 5.14 and Article 9) shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, employees, agents, legal and financial advisors, or other representatives); provided, however, that except as otherwise provided herein, no such termination shall relieve any party hereto of any liability or damages resulting from any breach of this Agreement.

(b) In the event that within 12 months of the termination of this Agreement pursuant to Section 8.2(a), 8.2(b), 8.4(a) or 8.4(b) any Acquisition Proposal by a third party is entered into, agreed to or consummated by the Company, then the Company shall pay Buyer a termination fee of $6,000,000, in same-day funds, on the earlier of the date an agreement is entered into in respect of an Acquisition Proposal or an Acquisition Proposal is consummated.

(c) The Company acknowledges that the agreements contained in Section 8.5(b) are an integral part of the transactions contemplated by this Agreement and constitute liquidated damages and not a penalty, and that, without these agreements, Buyer and Subsidiary would not have entered into this Agreement. If the Company fails to promptly pay the amount due pursuant to Section 8.5(b), and, in order to obtain such payment, Buyer commences a suit which results in a judgment against the Company for the fee set forth in this Section 8.5, the Company shall pay to Buyer its costs and expenses (including attorneys' fees) in connection with such suit, together with interest from the date of termination of this Agreement on the amounts owed at the prime rate of Bank of America, N.A., in effect from time to time during such period plus two percent.

8.6 Amendment. This Agreement may be amended by action taken by the Company, Buyer and Subsidiary at any time before or after Shareholder Approval, but after any such approval, no amendment shall be made which changes the amount or form of the Merger Consideration. This Agreement may not be amended except by an instrument in writing signed on behalf of the parties hereto.

8.7 Extension; Waiver. At any time prior to the Effective Time, each party hereto (for these purposes, Buyer and Subsidiary shall together be deemed one party and the Company shall be deemed the other party) may (i) extend the time for the performance of any of the obligations or other acts of the

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other party, (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document, certificate or writing delivered pursuant hereto, or (iii) waive compliance by the other party with any of the agreements or conditions contained herein. Any agreement on the part of either party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights.

ARTICLE 9

MISCELLANEOUS

9.1 Confidentiality. Pending Closing, the agreement executed by the Parties on July 26, 1999, concerning confidentiality shall remain in full force and effect.

9.2 Notices. All Notices under this Agreement shall be in writing and sent by certified or registered mail, overnight messenger service, telecopier or personal delivery, as follows:

(a) if to the Company, to:

Power Trends, Inc.
27715 Diehl Road
Warrenville, Illinois 60555 Attention: Mr. G. Russell Ashdown President and Chief Executive Officer Telecopier: (630) 393-6778

with a copy to:

Johnson and Colmar
300 South Wacker Drive
Suite 1000
Chicago, Illinois 60606
Attention: Michael Bonn
Telecopier: (312) 922-9283

(b) if to Buyer and Subsidiary, to:

Texas Instruments Incorporated 7839 Churchill Way, M/S 3995 Dallas, Texas 75251
-- or --
P.O. Box 650311, M/S 3995
Dallas, Texas 75265
Attention: Charles D. Tobin Telecopier: (972) 917-3804

with copies to:

Texas Instruments Incorporated 8505 Forest Lane, M/S 8658 Dallas, Texas 75243
-- or --
P.O. Box 660199, M/S 8658
Dallas, Texas 75266
Attention: Richard J. Agnich Telecopier: (972) 480-5061

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and

Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300 Dallas, Texas 75201-6950
Attention: R. Scott Cohen
Telecopier: (214) 746-7777

(c) if to the Shareholder Representatives, to:

Mr. William N. Sick, Jr.
565 North Sheridan Road
Winnetka, Illinois 60093
Telecopier: (847) 501-5108

with a copy to:

Johnson and Colmar
300 South Wacker Drive
Suite 1000
Chicago, Illinois 60606
Attention: Michael Bonn
Telecopier: (312) 922-9283

All Notices sent by certified or registered mail shall be considered to have been given three business days after being deposited in the mail. All Notices sent by overnight courier service, telecopier or personal delivery shall be considered to have been given when actually received by the intended recipient. A Party or the Shareholder Representatives may change its or their address for purposes of this Agreement by Notice in accordance with this Section 9.2.

9.3 Further Assurances. Each Party agrees (i) to furnish upon request to the other Party such further information, (ii) to execute and deliver to the other Party such other documents and (iii) to do such other acts and things, as the other Party reasonably requests for the purpose of carrying out the intent of this Agreement and the documents and instruments referred to in this Agreement.

9.4 Entire Agreement. This Agreement supersedes all prior agreements between the Parties with respect to its subject matter and constitutes (together with the Disclosure Schedule and the Parties' Closing Documents) a complete and exclusive statement of the terms of the agreement between the Parties with respect to its subject matter. This Agreement may not be amended except by a written agreement signed by the Party to be charged with the amendment.

9.5 Assignment. No Party may assign any of its rights under this Agreement without the prior written consent of the other Party or Parties.

9.6 No Third Party Beneficiaries. Nothing in this Agreement shall be considered to give any Person other than the Parties any legal or equitable right, claim or remedy under or in respect of this Agreement or any provision of this Agreement. This Agreement and all of its provisions are for the sole and exclusive benefit of the Parties and their respective successors and permitted assigns.

9.7 Severability. If any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement which is held invalid or unenforceable only in part shall remain in full force and effect to the extent not held invalid or unenforceable.

9.8 Captions. The captions of articles and sections of this Agreement are for convenience only and shall not affect this the construction or interpretation of this Agreement.

9.9 Construction. All references in this Agreement to "Section" or "Sections" refer to the corresponding section or sections of this Agreement. All words used in this Agreement shall be construed

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to be of the appropriate gender or number as the context requires. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms.

9.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement and all of which, when taken together, shall be considered to constitute one and the same agreement.

9.11 Governing Law. This Agreement shall be governed by the Laws of the State of Illinois without regard to conflicts of laws principles.

9.12 Binding Effect. This Agreement shall apply to, be binding in all respects upon and inure to the benefit of Parties and their respective successors and permitted assigns.

In witness, the Parties have executed this Agreement.

POWER TRENDS, INC.

By:  /s/ WILLIAM N. SICK, JR.
  ----------------------------------
    Name: William N. Sick, Jr.
    Title:  Chairman of the Board

TEXAS INSTRUMENTS INCORPORATED

By:   /s/ DELBERT A. WHITAKER
  ----------------------------------
    Name: Delbert A. Whitaker
    Title:  Senior Vice President

POWER ACQUISITION CORP.

By:   /s/ DELBERT A. WHITAKER
  ----------------------------------
   Name: Delbert A. Whitaker
   Title:  President

This Agreement is countersigned by the undersigned Depositary Agent as of the date first above written to acknowledge and agree to the provisions of Article 7 that pertain to the Depositary Agent.

HARRIS TRUST AND SAVINGS BANK,
as Depositary Agent

By:       /s/ D.G. DONOVAN
    --------------------------------
    Name: D.G. Donovan
    Title:  Assistant Vice President

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ANNEX I

DEFINITIONS

Accounts Receivable means accounts receivable, trade receivables, notes receivable and other receivables of the Business.

Acquisition Proposal is defined in Section 5.9(a).

Affiliate means, in respect of any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the first Person. As used in this definition, "control" means the direct or indirect possession of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company.

APB 16 means Accounting Principles Bulletin No. 16.

Articles of Incorporation means the Company's articles of incorporation, as amended to date.

Articles of Merger is defined in Section 2.3(a).

Assumed Stock Option is defined in Section 2.5(n).

Authorized Officer means a corporate officer of a corporation who is duly authorized to perform the specified action.

Average Buyer Stock Price is defined in Section 2.4(c).

Books and Records means books, records, ledgers, files, documents, correspondence, lists, reports, creative materials, advertising and promotional materials and other printed or written materials.

Business means the Company's business of manufacturing and selling integrated switching regulators and DC-to-DC converters with a focus on on-board modular power solutions.

Buyer means Texas Instruments Incorporated, a Delaware corporation with its principal executive offices located at 8505 Forest Lane, Dallas, Texas 75243.

Buyer Common Stock is defined in the Background Section B.

Buyer Legal Opinion is defined in Section 2.3(c)(3).

Buyer SEC Reports is defined in Section 4.7.

Buyer Termination Notice is defined in Section 8.4(b).

Certificates is defined in Section 2.5(b).

Cleanup Liability means any Liability under any Environmental Law for corrective action, including any investigation, cleanup, removal, containment or other remedial or response action or activity of the type covered by the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

Closing is defined in Section 2.2.

Closing Date means the date that Closing occurs.

Closing Documents means, in respect of a Party, the documents, instruments and agreements that it is required to deliver or enter into at Closing pursuant to the terms of this Agreement.

Common Stock means the Company's common stock, no par value per share.

Company means Power Trends, Inc., an Illinois corporation with its principal executive offices located at 27715 Diehl Road, Warrenville, Illinois 60555, and, with respect to the representations and warranties contained in Article 3, shall include the Foreign Sales Corporation.

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Company Affiliate Agreement is defined in Section 5.13.

Company Legal Opinion is defined in Section 2.3(b)(3).

Company Option Plans is defined in Section 2.5(n).

Company Shareholder Meeting is defined in Section 5.4.

Company Stock Option is defined in Section 2.5(n).

Company Termination Notice is defined in Section 8.3(b).

Consent means any approval, consent, ratification, waiver or other authorization (including any Permit).

Contract means any legally binding contract, agreement, obligation, promise or undertaking (whether written or oral, and whether express or implied).

Corporate Governance Agreement means (i) the 1989 Purchase Agreement, 1990 Purchase Agreement, 1991 Purchase Agreement, 1993 Purchase Agreement or 1994 Purchase Agreement (as those terms are defined in Part 12 of Article Four of the Company's Articles of Incorporation), (ii) the Registration Agreement or Put Agreement (as those terms are similarly defined), (iii) any restricted stock agreement pursuant to which the Company has issued and sold any shares of Preferred or Common Stock, or (iv) any other Contract to which the Company and one or more Shareholders are parties which restricts the transfer of any shares of Preferred or Common Stock, grants any Person a right of first refusal to purchase any shares of Preferred or Common Stock, or regulates the voting of any shares of Preferred or Common Stock.

Default means, in respect of a Contract, a breach or violation of or default under the Contract, or the occurrence of an event which with notice or the passage of time (or both) would constitute a breach, violation or default or permit termination, modification or acceleration of the Contract.

Defect is defined in Section 3.31(b).

Depositary Agent is defined in Section 7.2(a).

Disclosure Schedule means the disclosure schedule that the Company has delivered to Buyer concurrently with the execution of this Agreement by the Parties.

Dissenting Shares is defined in Section 2.5(m).

Dissenting Shareholders is defined in Section 2.5(m).

DOJ is defined in Section 5.6(b).

Effective Time is defined in Section 2.4(a).

Employee Benefit Plan means (i) an "employee pension plan" as defined in sec. 3(2) of ERISA, (ii) an "employee welfare benefit plan" as defined in sec. 3(1) of ERISA or (iii) any other employee benefit or fringe benefit plan or program, whether established by Law, a written agreement or other instrument, or custom or informal understanding.

Environmental Laws means, in respect of a Facility or other Real Property, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and Resource Conservation and Recovery Act of 1976, and all other applicable Laws and Orders relating to or imposing Liability or standards of conduct for the use, handling, generation, manufacturing, distribution, processing, collection, transportation, transfer, storage, treatment, disposal, cleanup, or Release of Hazardous Materials.

Environmental Liability means any Cleanup Liability or any other Liability under any Environmental Law or Occupational Safety and Health Law, including any Liability arising from a Release of Hazardous Materials at, on, in or under any Facility or other Real Property.

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Equipment means machinery, equipment, spare parts, furniture, fixtures and other items of tangible personal property of any type or kind used, held for use or useful in the conduct of the Business (but not including Inventories or Leasehold Improvements).

Equipment Lease means a Contract for the lease of Equipment or for the purchase of Equipment under a conditional sales or title retention agreement.

ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations issued by the Internal Revenue Service and Department of Labor.

Escrow Amount is defined in Section 7.2(a).

Escrow Fund is defined in Section 7.2(a).

Escrow Period is defined in Section 7.2(c).

Exchange Act means the Securities Exchange Act of 1934, as amended, and the related rules and regulations issued by the SEC thereunder.

Exchange Agent is defined in Section 2.5(a).

Exchange Fund is defined in Section 2.5(a).

Exchange Ratio is defined in Section 2.4(c).

Expiration Date is defined in Section 7.1.

Facility means any office, manufacturing facility, warehouse or other location or site that the Company currently owns, leases, operates, occupies or uses, or that it formerly owned, leased, operated, occupied or used, in the conduct of the Business.

Facility Lease means a lease of or other right to operate, occupy or use a Facility that the Company or any of its subsidiaries or Affiliates currently leases, operates, occupies or uses in connection with the conduct of the Business.

Financial Statements means the Company's audited financial statements, together with the notes thereto, for the years ended June 30, 1999, 1998 and 1997.

Foreign Sales Corporation means Power Trends Foreign Sales Corporation, a corporation organized under the laws of Barbados.

Former Facility Lease means a lease of or other right to operate, occupy or use a Facility that the Company or any of its current or former subsidiaries or Affiliates or predecessors-in-interest formerly leased, operated, occupied or used in connection with the conduct of the Business or prior operations.

FTC is defined in Section 5.6(b).

GAAP means United States generally accepted accounting principles, applied on a consistent basis.

Governmental Authority means (i) any federal, state, provincial, local, municipal, foreign or other government and (ii) any governmental or quasi-governmental body of any kind (including any administrative or regulatory agency, department, branch, commission or other entity).

Hazardous Activity means the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment or use of Hazardous Materials.

Hazardous Materials means any waste or other substance of any kind that is or was listed, defined, designated or classified under any Law or Order as hazardous, radioactive or toxic or as a pollutant or contaminant.

HSR means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Illinois Business Corporation Act means the Illinois Business Corporation Act of 1983, as amended.

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Internal Revenue Code means the U.S. Internal Revenue Code of 1986, as amended.

June 30 Balance Sheet means the Company's balance sheet as of June 30, 1999 included in the Financial Statements.

Knowledge means, in respect of the Company or Buyer, the actual awareness by an officer of the Company or Buyer, as the case may be, of a particular fact or other specified matter.

Law means any law, ordinance, code, regulation, rule, guideline or policy of any Governmental Authority or any principle or rule of common law.

Leasehold Improvements means depreciable or amortizable improvements made by (or on behalf of) the tenant under a Facility Lease which belong to the tenant and not to the landlord.

Liability means any liability or obligation, whether known or unknown, absolute or contingent, liquidated or unliquidated, or due or to become due.

Lien means any lien, security interest, claim, community property interest, equitable interest, option, pledge, right of first refusal or other encumbrance or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

Losses is defined in Section 7.2(b).

Marks means trade marks, service marks, trade names, assumed names, brand names and logotypes (including translations, adaptations, derivations and combinations) and related applications, registrations and renewals.

Material Adverse Effect means a material adverse effect on the business, operations, financial position or assets of the Company taken as a whole.

Maximum Average Buyer Stock Price is defined in Section 2.4(c)(2).

Maximum Price Proviso is defined in Section 8.4(b).

Merger is defined in Section 2.1.

Merger Consideration is defined in Section 2.4(c).

Minimum Average Buyer Stock Price is defined in Section 2.4(c).

Minimum Price Proviso is defined in Section 8.3(b).

New Shares is defined in Section 7.2(d).

Notice means any notice, demand, charge, complaint or other communication from any Person.

Notices is defined in Section 3.31(a).

NYSE is defined in Section 2.4(c).

Occupational Safety and Health Laws means the Occupational Safety and Health Act of 1970, as amended, and all other applicable Laws and Orders intended to provide safe and healthful working conditions and to reduce occupational safety and health hazards.

Officer's Certificate means a certificate signed by an Authorized Officer whose responsibilities extend to the subject matter of the certificate.

Option means an option to purchase shares of Common Stock granted under the Company's Long-Term Incentive Plan.

Order means any order, judgment, decree, ruling, consent decree, settlement agreement, stipulation, injunction or subpoena entered or issued by any court, Governmental Authority or arbitrator.

Ordinary Course of Business means, in respect of the Company, an action taken by it which (i) is consistent with its past practices and is taken in the ordinary course of the normal day-to-day operations

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and (ii) is not required by applicable Law or its Organizational Documents to be authorized by its board of directors.

Organizational Documents means the certificate or articles of incorporation and by-laws of a corporation, each as amended to date.

Party means both Buyer and Subsidiary (or either one of them, as the context requires) or the Company, and Parties means all of them.

Patents means patents, patent applications and patent disclosures and related reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations.

Permit means any approval, consent, license, permit, registration, certificate, waiver, confirmation or other authorization issued, granted or otherwise made available by any Governmental Authority.

Person means any individual, corporation, general or limited partnership, limited liability company, joint venture, association, organization, estate, trust or other entity or any Governmental Authority.

Plan of Merger is defined in Section 2.3(a).

Preferred Stock means the Company's preferred stock.

Product is defined in Section 3.31(b).

Proprietary Information means trade secrets and proprietary or confidential business information, including: (i) ideas, formulas, discoveries and inventions (whether patentable or unpatentable, and whether or not reduced to practice),
(ii) know-how, and (iii) computer source codes, programs, software and documentation (other than those that are commercially available).

Proxy Statement is defined in Section 3.33.

Real Property means land or an interest in land (other than an interest in a Facility Lease).

Recalls is defined in Section 3.31(a).

Reduction Notice is defined in Section 8.4(b).

Related Party means, in respect of the Company, (i) any Affiliate of the Company or (ii) any Person for which any officer or director of the Company is serving as an officer, director, partner, manager, executor, trustee or in a similar capacity or in which any officer or director of the Company has an equity, beneficial or other financial interest.

Release means a spill, leak, emission, discharge, deposit, dumping or other release into the environment, whether intentional or unintentional.

Representatives is defined in Section 7.1.

S-4 is defined in Section 3.33.

SEC means the Securities and Exchange Commission.

Securities Act means the Securities Act of 1933, as amended, and the related rules and regulations issued by the SEC thereunder.

Schedule means a schedule contained in the Disclosure Schedule (including a subschedule of any such schedule).

Shareholder means a Person who is the owner of record of one or more Shares as of Closing.

Shareholder Approval means the adoption of this Agreement and approval of the Merger by the affirmative approval of the holders of (i) Common Stock representing two-thirds of the votes that may be cast by the holders of all outstanding Common Stock (voting as a single class) and (ii) a majority of the outstanding Preferred Stock (voting as a single class), in each case as of the record date set for such action.

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Shareholder Representatives means William N. Sick, Jr., James E. Forrest, and Lloyd D. Ruth.

Shares means shares of Preferred Stock or Common Stock, or both.

Subsidiary means Power Acquisition Corp., an Illinois corporation and wholly owned subsidiary of Buyer.

Suit means any action, suit, proceeding, arbitration, audit, hearing or investigation (whether civil, criminal, administrative or investigative in nature, and whether formal or informal) by, before or in any court, Governmental Authority or arbitrator.

Surviving Corporation is defined in Section 2.1.

Systems is defined in Section 3.30(f).

Takeover Statutes is defined in Section 3.32.

Tax means any federal, state, provincial, local, municipal or foreign tax, charge, fee, levy, or similar assessment or liability, including without limitation, income, franchise, gross receipts, capital stock, profits, withholding, social security, unemployment, real property, personal property, stamp, excise, occupation, sales, use, transfer, value added, estimated or other tax (including any related interest, fines, penalties and additions), whether disputed or not, and any transferee liability in respect of Taxes, any liability in respect of Taxes imposed by contract, Tax sharing agreement, Tax reimbursement agreement, or any similar agreement.

Tax Return means any return (including any information return), report, statement, form or other document required to be filed with or submitted to any Governmental Authority in connection with the determination, assessment, collection or payment of any Tax.

Termination Date is defined in Section 8.2(a).

Third Party Claim is defined in Section 7.4.

Threatened means, in respect of a Suit, that Notice has been given, or an other event has occurred or any other circumstance exists, that would lead a prudent individual to conclude that the Suit is likely to be initiated or otherwise pursued in the future.

Top-Up Notice is defined in Section 8.3(b).

Voting Agreement is defined in the Background Section D.

Warrant is defined in Section 2.5(o).

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EXHIBITS TO MERGER AGREEMENT

Exhibit A -- Voting Agreement -- Attached hereto as Annex B

Exhibits B-1, B-2, B-3, B-4, B-5 and B-6 -- Forms of Employment Agreements -- Not Included

Exhibit C -- Amended and Restated Articles of Incorporation of Power Trends, Inc. -- Attached hereto as Annex D

Exhibit D -- Form of Company Affiliate Letter to Buyer -- Not Included

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ANNEX B

VOTING AGREEMENT

In consideration of Texas Instruments Incorporated, a Delaware corporation ("Buyer"), Power Acquisition Corp., an Illinois corporation ("Subsidiary"), and Power Trends, Inc., an Illinois corporation (the "Company"), entering into on the date hereof a Merger Agreement, dated as of the date hereof (the "Merger Agreement"), pursuant to which Subsidiary, upon the terms and subject to the conditions thereof, will merge with and into the Company (the "Merger"), and each outstanding share of Common Stock and Preferred Stock (as such terms are defined in the Merger Agreement) (collectively, the "Company Capital Stock") will be converted into the right to receive the Merger Consideration (as defined in the Merger Agreement) in accordance with the terms of the Merger Agreement, each of the undersigned holders (each, a "Shareholder") of shares of Company Capital Stock agrees with each of Buyer, Subsidiary and the Company as follows:

1. During the period (the "Agreement Period") beginning on the date hereof and ending on the earlier of (i) the Effective Time (as defined in the Merger Agreement), (ii) 90 days after the termination of the Merger Agreement in accordance with Section 8.4(a), if the termination resulted from a breach of a covenant or agreement by the Company, or Section 8.4(c), and (iii) the date of the termination of the Merger Agreement for any other reason, each Shareholder hereby agrees to vote the shares of Company Capital Stock set forth opposite its name in SCHEDULE A hereto (the "Schedule A Securities") to approve and adopt the Merger Agreement and the Merger (provided that the Shareholder shall not be required to vote in favor of the Merger Agreement or the Merger if the Merger Agreement has, without the consent of the Shareholder, been amended in any manner that is material and adverse to such Shareholder) and any actions directly and reasonably related thereto at any meeting or meetings of the shareholders of the Company, and at any adjournment thereof or pursuant to action by written consent, at or by which such Merger Agreement, or such other actions, are submitted for the consideration and vote of the shareholders of the Company so long as such meeting is held (including any adjournment thereof) or written consent adopted prior to the termination of the Agreement Period.

2. During the Agreement Period, each Shareholder hereby agrees that such Shareholder shall not enter into any voting agreement or grant a proxy or power of attorney with respect to the Schedule A Securities in any manner inconsistent with the obligations of such Shareholder under this Agreement or take any other action that is inconsistent with the obligations of such Shareholder under this Agreement, including any action that would prevent, or materially delay the consummation of, the transactions contemplated by the Merger Agreement.

3. During the Agreement Period, each Shareholder will not, directly or indirectly, (i) take any action to solicit, initiate or encourage any Acquisition Proposal (as defined in the Merger Agreement) or (ii) engage in negotiations or discussions with, or disclose any nonpublic information relating to the Company or any of its subsidiaries or afford access to the properties, books or records of the Company or any of its subsidiaries to, or otherwise assist, facilitate or encourage, any person that the Shareholder reasonably believes may be considering making, or has made, an Acquisition Proposal.

4. Prior to the record date set for the Company Shareholder Meeting (as defined in the Merger Agreement), each of Marquette Venture Partners, L.P. and Wind Point Partners, L.P. agree to convert a sufficient number of shares of Preferred Stock owned by them into Common Stock so as to assure the requisite approvals of the Merger by the holders of the Common Stock and Preferred Stock, respectively.

5. Each Shareholder hereby represents and warrants to Buyer and Subsidiary that as of the date hereof:

(a) Such Shareholder (i) owns beneficially all of the shares of Company Capital Stock set forth opposite the Shareholder's name in SCHEDULE A hereto, (ii) has the full and unrestricted legal power, authority and right to enter into, execute and deliver this Voting Agreement without the consent or approval of any other person, and (iii) has not entered into any voting agreement or other similar

B-1

agreement with or granted any person any proxy (revocable or irrevocable) in respect of such shares (other than this Voting Agreement).

(b) This Voting Agreement is the valid and binding agreement of such Shareholder.

(c) No investment banker, broker or finder is entitled to a commission or fee from such Shareholder or the Company in respect of this Voting Agreement based upon any arrangement or agreement made by or on behalf of the Shareholder.

6. If any provision of this Voting Agreement shall be invalid or unenforceable under applicable law, such provision shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining provisions of this Voting Agreement.

7. This Voting Agreement may be executed in two or more counterparts each of which shall be an original with the same effect as if the signatures hereto and thereto were upon the same instrument.

8. The parties hereto agree that if, for any reason, any party hereto shall have failed to perform its obligations under this Voting Agreement, then the party seeking to enforce this Voting Agreement against such non-performing party shall be entitled to specific performance and injunctive and other equitable relief, and the parties hereto further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive relief. This provision is without prejudice to any other rights or remedies, whether at law or in equity, that any party hereto may have against any other party hereto for any failure to perform its obligations under this Voting Agreement.

9. This Voting Agreement shall be governed by and construed in accordance with the laws of the State of Illinois.

10. Each Shareholder will, upon request, execute and deliver any additional documents deemed by Buyer to be reasonably necessary or desirable to complete and effectuate the covenants contained herein.

11. This Agreement shall terminate upon the termination of the Agreement Period.

12. No Shareholder shall sell, assign, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding in respect of the direct or indirect sale, assignment, transfer, encumbrance or other disposition of, any Schedule A Securities during the term of this Agreement unless such Shareholder first provides written notice thereof to Buyer and obtains a written agreement of the proposed transferee to be bound by the terms of this Agreement.

13. Each Shareholder agrees not to exercise any rights (including, without limitation, under Section 5/11.70 of the Illinois Business Corporation Act) to demand appraisal of any Schedule A Securities which may arise in respect of the Merger.

14. Buyer, Subsidiary and the Company understand and agree that this Agreement pertains only to each Shareholder and not to any of its affiliates, if any, or advisers.

15. Buyer, Subsidiary and the Company severally, but not jointly, represent and warrant to each Shareholder that there is no agreement, understanding or commitment, written or oral, to pay any consideration directly or indirectly in connection with the Merger or otherwise to or for the benefit of any holder of Company Capital Stock or options thereon other than as set forth in the Merger Agreement (except, in the case of directors, employees, agents, customers, suppliers or contractors of the Company who are also holders, such consideration as is payable by the Company in the ordinary course of business, and except for amounts payable to officers, directors or employees in connection with or pursuant to any options or option, stock purchase, stock ownership or other employee benefit plans).

16. Neither Buyer, Subsidiary nor the Company will enter into any agreement with any other shareholder of the Company having a purpose or effect substantially similar to that of this Voting Agreement on financial terms (in respect of such other stockholder) more favorable than the terms of this Voting Agreement.

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17. Any Shareholder who is also a director of the Company will not, by execution of this Agreement, be precluded from exercising his fiduciary duties under applicable Law in his capacity as a director with respect to the Company.

18. Nothing contained in this Voting Agreement shall be deemed to vest in Buyer, Subsidiary or the Company any direct or indirect ownership or incidence of ownership of or with respect to any Schedule A Securities. All rights, ownership and economic benefits of and relating to the Schedule A Securities shall remain and belong to the applicable Shareholder and neither Buyer, Subsidiary nor the Company shall have any power or authority to direct any Shareholder in the voting of any Schedule A Securities or the performance by any Shareholder of its duties or responsibilities as a shareholder of the Company, except as otherwise provided herein.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

B-3

IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement as of September 29, 1999.

TEXAS INSTRUMENTS INCORPORATED

By:   /s/ DELBERT A. WHITAKER
  ----------------------------------
    Name: Delbert A. Whitaker
    Title: Senior Vice President

POWER ACQUISITION CORP.

By:   /s/ DELBERT A. WHITAKER
  ----------------------------------
    Name: Delbert A. Whitaker
    Title: President

POWER TRENDS, INC.

By:  /s/ WILLIAM N. SICK, JR.
  ----------------------------------
Name: William N. Sick, Jr.
Title: Chairman of the Board

MARQUETTE VENTURE PARTNERS, L.P.

By: Marquette Venture Associates,
L.P.,
its General Partner

By: Marquette Management Partners,
its General Partner

By:    /s/ LLOYD D. RUTH
 ---------------------------------
    Name: Lloyd D. Ruth
    Title: General Partner

WIND POINT PARTNERS, L.P.

By:    /s/ JAMES E. FORREST
  ----------------------------------
    Name: James E. Forrest
    Title: General Partner

    /s/ WILLIAM N. SICK, JR.
------------------------------------
        William N. Sick, Jr.

B-4

BUSINESS RESOURCES INTERNATIONAL,
INC.

By:  /s/ WILLIAM N. SICK, JR.
  ----------------------------------
    Name: William N. Sick, Jr.
    Title: President

JILL MELANIE SICK 1991 TRUST

By:  /s/ WILLIAM N. SICK, JR.
  ----------------------------------
    Name: William N. Sick, Jr.
    Title: Trustee

DAVID LOUIS SICK 1991 TRUST

By:  /s/ WILLIAM N. SICK, JR.
  ----------------------------------
    Name: William N. Sick, Jr.
    Title: Trustee

LOUIS PITCHLYN WILLIAMS 1992 TRUST

By:  /s/ WILLIAM N. SICK, JR.
  ----------------------------------
    Name: William N. Sick, Jr.
    Title: Trustee

STEPHANIE ANN SICK 1991 TRUST

By:  /s/ WILLIAM N. SICK, JR.
  ----------------------------------
    Name: William N. Sick, Jr.
    Title: Trustee

     /s/ G. RUSSELL ASHDOWN
------------------------------------
         G. Russell Ashdown

B-5

SCHEDULE A
TO
VOTING AGREEMENT

SHAREHOLDER                                                     CLASS             NUMBER OF SHARES
-----------                                                     -----             ----------------
Marquette Venture Partners, L.P.....................  A-1 Convertible Preferred        17,000
                                                      A-2 Convertible Preferred         9,710
                                                      A-3 Convertible Preferred         6,250
                                                      A-4 Convertible Preferred        29,443
                                                      B-1 Convertible Preferred         7,172
Wind Point Partners, L.P............................  A-4 Convertible Preferred        29,082
                                                      B-1 Convertible Preferred         3,543
William N. Sick, Jr. ...............................  B-1 Convertible Preferred         1,685
                                                      Common                          500,000
Business Resources International....................  B-1 Convertible Preferred           715
Jill Melanie Sick 1991 Trust........................  Common                           48,000
David Louis Sick 1991 Trust.........................  Common                           48,000
Louis Pitchlyn Williams 1992 Trust..................  Common                           24,000
Stephanie Ann Sick 1991 Trust.......................  A-4 Convertible Preferred           900
G. Russell Ashdown..................................  A-4 Convertible Preferred           400
                                                      Common                          701,518

B-6

ANNEX C

SECTIONS 11.65 AND 11.70
ILLINOIS BUSINESS CORPORATION ACT

SECTION 11.65. RIGHT TO DISSENT

sec. 11.65. Right to dissent. (a) A shareholder of a corporation is entitled to dissent from, and obtain payment for his or her shares in the event of any of the following corporate actions:

(1) consummation of a plan of merger or consolidation or a plan of share exchange to which the corporation is a party if (i) shareholder authorization is required for the merger or consolidation or the share exchange by Section 11.20 or the articles of incorporation or (ii) the corporation is a subsidiary that is merged with its parent or another subsidiary under Section 11.30;

(2) consummation of a sale, lease or exchange of all, or substantially all, of the property and assets of the corporation other than in the usual and regular course of business;

(3) an amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it:

(i) alters or abolishes a preferential right of such shares;

(ii) alters or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of such shares;

(iii) in the case of a corporation incorporated prior to January 1, 1982, limits or eliminates cumulative voting rights with respect to such shares; or

(4) any other corporate action taken pursuant to a shareholder vote if the articles of incorporation, by-laws, or a resolution of the board of directors provide that shareholders are entitled to dissent and obtain payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or resolution.

(b) A shareholder entitled to dissent and obtain payment for his or her shares under this Section may not challenge the corporate action creating his or her entitlement unless the action is fraudulent with respect to the shareholder or the corporation or constitutes a breach of a fiduciary duty owed to the shareholder.

(c) A record owner of shares may assert dissenters' rights as to fewer than all the shares recorded in such person's name only if such person dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf the record owner asserts dissenters' rights. The rights of a partial dissenter are determined as if the shares as to which dissent is made and the other shares were recorded in the names of different shareholders. A beneficial owner of shares who is not the record owner may assert dissenters' rights as to shares held on such person's behalf only if the beneficial owner submits to the corporation the record owner's written consent to the dissent before or at the same time the beneficial owner asserts dissenters' rights.

SECTION 11.70. PROCEDURE TO DISSENT

sec. 11.70. Procedure to Dissent. (a) If the corporate action giving rise to the right to dissent is to be approved at a meeting of shareholders, the notice of meeting shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to the meeting, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to vote on the transaction and to determine whether or not to exercise dissenters' rights, a shareholder may assert dissenters' rights only if the shareholder delivers to the corporation before the vote is taken a written demand for payment for his or her shares if the proposed action is consummated, and the shareholder does not vote in favor of the proposed action.

C-1

(b) If the corporate action giving rise to the right to dissent is not to be approved at a meeting of shareholders, the notice to shareholders describing the action taken under Section 11.30 or Section 7.10 shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to or concurrently with the notice, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to determine whether or not to exercise dissenters' rights, a shareholder may assert dissenter's rights only if he or she delivers to the corporation within 30 days from the date of mailing the notice a written demand for payment for his or her shares.

(c) Within 10 days after the date on which the corporate action giving rise to the right to dissent is effective or 30 days after the shareholder delivers to the corporation the written demand for payment, whichever is later, the corporation shall send each shareholder who has delivered a written demand for payment a statement setting forth the opinion of the corporation as to the estimated fair value of the shares, the corporation's latest balance sheet as of the end of a fiscal year ending not earlier than 16 months before the delivery of the statement, together with the statement of income for that year and the latest available interim financial statements, and either a commitment to pay for the shares of the dissenting shareholder at the estimated fair value thereof upon transmittal to the corporation of the certificate or certificates, or other evidence of ownership, with respect to the shares, or instructions to the dissenting shareholder to sell his or her shares within 10 days after delivery of the corporation's statement to the shareholder. The corporation may instruct the shareholder to sell only if there is a public market for the shares at which the shares may be readily sold. If the shareholder does not sell within that 10 day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the average closing price of the shares, if listed on a national exchange, or the average of the bid and asked price with respect to the shares quoted by a principal market maker, if not listed on a national exchange, during that 10 day period.

(d) A shareholder who makes written demand for payment under this Section retains all other rights of a shareholder until those rights are cancelled or modified by the consummation of the proposed corporate action. Upon consummation of that action, the corporation shall pay to each dissenter who transmits to the corporation the certificate or other evidence of ownership of the shares the amount the corporation estimates to be the fair value of the shares, plus accrued interest, accompanied by a written explanation of how the interest was calculated.

(e) If the shareholder does not agree with the opinion of the corporation as to the estimated fair value of the shares or the amount of interest due, the shareholder, within 30 days from the delivery of the corporation's statement of value, shall notify the corporation in writing of the shareholder's estimated fair value and amount of interest due and demand payment for the difference between the shareholder's estimate of fair value and interest due and the amount of the payment by the corporation or the proceeds of sale by the shareholder, whichever is applicable because of the procedure for which the corporation opted pursuant to subsection (c).

(f) If, within 60 days from delivery to the corporation of the shareholder notification of estimate of fair value of the shares and interest due, the corporation and the dissenting shareholder have not agreed in writing upon the fair value of the shares and interest due, the corporation shall either pay the difference in value demanded by the shareholder, with interest, or file a petition in the circuit court of the county in which either the registered office or the principal office of the corporation is located, requesting the court to determine the fair value of the shares and interest due. The corporation shall make all dissenters, whether or not residents of this State, whose demands remain unsettled parties to the proceeding as an action against their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. Failure of the corporation to commence an action pursuant to this Section shall not limit or affect the right of the dissenting shareholders to otherwise commence an action as permitted by law.

(g) The jurisdiction of the court in which the proceeding is commenced under subsection (f) by a corporation is plenary and exclusive. The court may appoint one or more persons as appraisers to receive

C-2

evidence and recommend decision on the question of fair value. The appraisers have the power described in the order appointing them, or in any amendment to it.

(h) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds that the fair value of his or her shares, plus interest, exceeds the amount paid by the corporation or the proceeds of sale by the shareholder, whichever amount is applicable.

(i) The court, in a proceeding commenced under subsection (f), shall determine all costs of the proceeding, including the reasonable compensation and expenses of the appraisers, if any, appointed by the court under subsection (g), but shall exclude the fees and expenses of counsel and experts for the respective parties. If the fair value of the shares as determined by the court materially exceeds the amount which the corporation estimated to be the fair value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation. If the amount which any dissenter estimated to be the fair value of the shares materially exceeds the fair value of the shares as determined by the court, then all or any part of the costs may be assessed against that dissenter. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, as follows:

(1) Against the corporation and in favor of any or all dissenters if the court finds that the corporation did not substantially comply with the requirements of subsections (a), (b), (c), (d), or (f).

(2) Against either the corporation or a dissenter and in favor of any other party if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Section.

If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and that the fees for those services should not be assessed against the corporation, the court may award to that counsel reasonable fees to be paid out of the amounts awarded to the dissenters who are benefited. Except as otherwise provided in this Section, the practice, procedure, judgment and costs shall be governed by the Code of Civil Procedure.

(j) As used in this Section:

(1) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the consummation of the corporate action to which the dissenter objects excluding any appreciation or depreciation in anticipation of the corporate action, unless exclusion would be inequitable.

(2) "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.

C-3

ANNEX D

AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
POWER TRENDS, INC.

ARTICLE 1: The name of the corporation is Power Trends, Inc.

ARTICLE 2: The registered office of the corporation in the State of Illinois is located at 208 S. LaSalle Street, Chicago, Cook County, Illinois 60604. The name of the registered agent of the corporation at such address is C T Corporation System.

ARTICLE 3: The purpose for which the corporation is organized is the transaction of any and all lawful businesses for which corporations may be incorporated under the Illinois Business Corporation Act, as amended.

ARTICLE 4: The total number of shares which the corporation shall have authority to issue is 10,000 shares, par value $.01 per share, designated Common Stock.

ARTICLE 5: The number of directors constituting the current board of directors is three. The names and addresses of the persons who are currently serving as directors, until the next annual meeting of shareholders or until their successors are elected and qualify are:

Delbert A. Whitaker                6426 Forest Creek
                                   Dallas, TX 75230

M. Samuel Self                     5127 Quail Lake Drive
                                   Dallas, TX 75287

Bart T. Thomas                     7301 Edgewood Drive
                                   Dallas, TX 75025

D-1

PART II

INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The General Corporation Law of the State of Delaware, at Section 145, provides, in pertinent part, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as the director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. In addition, the indemnification of expenses, including attorneys' fees, is allowed in derivative actions, except no indemnification is allowed in respect to any claim, issue or matter as to which any such person has been adjudged to be liable to the corporation, unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought decides that indemnification is proper. To the extent that any such person succeeds on the merits or otherwise, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. The determination that the person to be indemnified met the applicable standard of conduct, if not made by a court, is made by the directors of the corporation by a majority vote of the directors not party to such an action, suit or proceeding even though less than a quorum, by a committee of such directors designated by majority vote of such directors even though less than a quorum, or, if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or by the stockholders. Expenses may be paid in advance upon the receipt, in the case of officers and directors, of undertakings to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the corporation as authorized in this section. A corporation may purchase indemnity insurance.

The above described indemnification and advancement of expenses, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and inure to the benefit of such person's heirs, executors and administrators. Article VI, Section 2 of the Texas Instruments' Bylaws provides that Texas Instruments shall indemnify its officers and directors for such expenses, judgments, fines and amounts paid in settlement to the full extent permitted by the laws of the State of Delaware.
Section 102(b)(7) of the General Corporation Law of the State of Delaware, as amended, permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. Article Seventh of Texas Instruments' Restated Certificate of Incorporation contains such a provision.

Under insurance policies of Texas Instruments, directors and officers of Texas Instruments may be indemnified against certain losses arising from certain claims, including claims under the Securities Act of 1933, which may be made against such persons by reason of their being such directors or officers.

II-1


ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

EXHIBIT LIST

   EXHIBIT
     NO.                               DESCRIPTION OF EXHIBIT
   -------                             ----------------------
 2                  -- Agreement and Plan of Merger, dated as of September 29,
                       1999, by and among Texas Instruments, Power Trends and
                       Power Acquisition Corp.*
 3(a)               -- Restated Certificate of Incorporation of Texas
                       Instruments.(1)
 3(b)               -- Certificate of Amendment to Restated Certificate of
                       Incorporation of Texas Instruments.(1)
 3(c)               -- Certificate of Amendment to Restated Certificate of
                       Incorporation of Texas Instruments.(1)
 3(d)               -- Certificate of Amendment to Restated Certificate of
                       Incorporation of Texas Instruments.(2)
 3(e)               -- Certificate of Ownership and Merger Merging Texas
                       Instruments Automation Controls, Inc. into Texas
                       Instruments.(1)
 3(f)               -- Certificate of Elimination of Designations of Preferred
                       Stock of Texas Instruments.(1)
 3(g)               -- Certificate of Ownership and Merger Merging Tiburon
                       Systems, Inc. into Texas Instruments.(3)
 3(h)               -- Certificate of Ownership and Merger Merging Tartan, Inc.
                       into Texas Instruments.(3)
 3(i)               -- Certificate of Designation relating to Texas Instruments'
                       Participating Cumulative Preferred Stock.(4)
 3(j)               -- Certificate of Elimination of Designation of Preferred
                       Stock of Texas Instruments.(5)
 3(k)               -- Bylaws of Texas Instruments.(6)
 4(a)(i)            -- Rights Agreement, dated as of June 18, 1998, between
                       Texas Instruments and Harris Trust and Savings Bank as
                       Rights Agent, which includes as Exhibit B the form of
                       Rights Certificate.(7)
 4(a)(ii)           -- Amendment, dated as of September 18, 1998, to the Rights
                       Agreement.(9)
 4(b)               -- Texas Instruments agrees to provide the Commission, upon
                       request, copies of instruments defining the rights of
                       holders of long-term debt of Texas Instruments and its
                       subsidiaries.
 5                  -- Opinion of Weil, Gotshal & Manges LLP.*
 8(a)               -- Opinion of Weil, Gotshal & Manges LLP regarding certain
                       tax matters.*
 8(b)               -- Opinion of Johnson and Colmar regarding certain tax
                       matters.*
10(a)(i)            -- Texas Instruments' Deferred Compensation Plan.(9)
10(a)(ii)           -- Amendment No. 1 to Texas Instruments' Deferred
                       Compensation Plan.(9)
10(a)(iii)          -- Amendment No. 2 to Texas Instruments' Deferred
                       Compensation Plan.(10)
10(a)(iv)           -- Amendment No. 3 to Texas Instruments' Deferred
                       Compensation Plan.(11)
10(b)               -- Texas Instruments' Long-term Incentive Plan.(11)
10(c)               -- Texas Instruments' 1996 Long-term Incentive Plan.(12)
10(d)               -- Texas Instruments' Executive Officer Performance
                       Plan.(12)
10(e)               -- Texas Instruments' Restricted Stock Unit Plan for
                       Directors.(13)
10(f)               -- Texas Instruments' Directors Deferred Compensation
                       Plan.(13)

II-2


   EXHIBIT
     NO.                               DESCRIPTION OF EXHIBIT
   -------                             ----------------------
10(g)               -- Texas Instruments' Stock Option Plan for Non-Employee
                       Directors.(15)
10(h)               -- Agreement and Plan of Merger, dated as of May 29, 1999,
                       by and among Texas Instruments, Telogy Networks, Inc. and
                       TNI Acquisition Corp. (exhibits and schedules
                       omitted).(14)
10(i)               -- Asset Purchase Agreement dated as of January 4, 1997
                       between Texas Instruments and Raytheon Company (exhibits
                       and schedules omitted).(15)
10(j)               -- Acquisition Agreement dated as of June 18, 1998 between
                       Texas Instruments and Micron Technology, Inc. (exhibit C
                       omitted).(16)
10(k)               -- Second Amendment to Acquisition Agreement dated as of
                       September 30, 1998 between Texas Instruments and Micron
                       Technology, Inc.(17)
10(l)               -- Securities Rights and Restrictions Agreement dated as of
                       September 30, 1998 between Texas Instruments and Micron
                       Technology, Inc.(5)
10(m)               -- Agreement and Plan of Merger, dated as of July 25, 1999,
                       by and among Texas Instruments, Unitrode, Inc. and
                       Unicorn Acquisition Corp.*
11                  -- Statement Regarding Computation of Per Share Earnings.*
21                  -- Subsidiaries of Texas Instruments.*
23(a)               -- Consent of Ernst & Young LLP.*
23(b)               -- Consent of Arthur Andersen LLP.*
23(c)               -- Consent of Weil, Gotshal & Manges LLP (included in
                       exhibits 5 and 8(a)).
23(d)               -- Consent of Johnson and Colmar (included in exhibit 8(b)).
24                  -- Powers of Attorney (included on the signature pages to
                       this registration statement).


* Filed herewith.

(1) Incorporated by reference to the Exhibits filed with Texas Instruments' Annual Report on Form 10-K for 1993.

(2) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.

(3) Incorporated by reference to the Exhibits filed with Texas Instruments' Registration Statement No. 333-41919 on Form S-8 filed December 10, 1997.

(4) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.

(5) Incorporated by reference to the Exhibits filed with Texas Instruments' Annual Report on Form 10-K for 1998.

(6) Incorporated by reference to the Exhibits filed with Texas Instruments' Current Report on Form 8-K dated December 4, 1997.

(7) Incorporated by reference to the Exhibits filed with Texas Instruments' Registration Statement on Form 8-A dated June 23, 1998.

(8) Incorporated by reference to the Exhibit filed with Texas Instruments' Amendment No. 1 to Form 8-A, dated September 23, 1998.

(9) Incorporated by reference to the Exhibits filed with Texas Instruments' Annual Report on Form 10-K for 1994.

(10) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

II-3


(11) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.

(12) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.

(13) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.

(14) Incorporated by reference to the Exhibits filed with Texas Instruments' Registration Statement No. 333-80157 on Form S-4 filed June 8, 1999.

(15) Incorporated by reference to the Exhibits filed with Texas Instruments' Current Report on Form 8-K dated January 4, 1997.

(16) Incorporated by reference to the Exhibits filed with Texas Instruments' Current Report on Form 8-K dated June 18, 1998.

(17) Incorporated by reference to the Exhibits filed with Texas Instruments' Current Report on Form 8-K dated October 15, 1998.

FINANCIAL STATEMENT SCHEDULES

                                                              PAGE
                                                              ----
Schedule II. Allowance for Losses and Cash-Related Special
  Charges of Texas Instruments. ............................  S-1
Schedule II. Accounts Receivable Allowances of Power
  Trends. ..................................................  S-2

All other schedules have been omitted because the required information is either not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or the notes thereto.

ITEM 22. UNDERTAKINGS.

(a) (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

(2) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the provisions described under Item 20 above, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expense incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted against the registrant by such director, officer or controlling person in connection with the securities being

II-4


registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

(c) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(d) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

II-5


SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in Dallas, Texas, on the 15th day of October, 1999.

TEXAS INSTRUMENTS INCORPORATED

By:  /s/ WILLIAM A. AYLESWORTH
  ----------------------------------
    William A. Aylesworth
    Senior Vice President,
    Treasurer and
    Chief Financial Officer

POWER OF ATTORNEY

The registrant and each person whose signature appears below constitutes and appoints each of Thomas J. Engibous, Richard J. Agnich, William A. Aylesworth and M. Samuel Self, or any of them, each acting alone, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign and file (i) a registration statement, and any and all amendments, thereto, relating to the offering covered hereby filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (ii) any and all amendments (including post-effective amendments) to this registration statement, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

                      SIGNATURE                                   TITLE                     DATE
                      ---------                                   -----                     ----

                 /s/ JAMES R. ADAMS                              Director              October 15, 1999
-----------------------------------------------------
                   James R. Adams

                 /s/ DAVID L. BOREN                              Director              October 15, 1999
-----------------------------------------------------
                   David L. Boren

                /s/ JAMES B. BUSEY IV                            Director              October 15, 1999
-----------------------------------------------------
                  James B. Busey IV

                 /s/ DANIEL A. CARP                              Director              October 15, 1999
-----------------------------------------------------
                   Daniel A. Carp

               /s/ THOMAS J. ENGIBOUS                     Chairman of the Board;       October 15, 1999
-----------------------------------------------------   President; Chief Executive
                 Thomas J. Engibous                         Officer; Director

             /s/ GERALD W. FRONTERHOUSE                          Director              October 15, 1999
-----------------------------------------------------
               Gerald W. Fronterhouse

II-6


                      SIGNATURE                                   TITLE                     DATE
                      ---------                                   -----                     ----

                 /s/ DAVID R. GOODE                              Director              October 15, 1999
-----------------------------------------------------
                   David R. Goode

                /s/ WAYNE R. SANDERS                             Director              October 15, 1999
-----------------------------------------------------
                  Wayne R. Sanders

                 /s/ RUTH J. SIMMONS                             Director              October 15, 1999
-----------------------------------------------------
                   Ruth J. Simmons

               /s/ CLAYTON K. YEUTTER                            Director              October 15, 1999
-----------------------------------------------------
                 Clayton K. Yeutter

              /s/ WILLIAM A. AYLESWORTH                   Senior Vice President;       October 15, 1999
-----------------------------------------------------   Treasurer; Chief Financial
                William A. Aylesworth                            Officer

                 /s/ M. SAMUEL SELF                       Senior Vice President;       October 15, 1999
-----------------------------------------------------  Controller; Chief Accounting
                   M. Samuel Self                                Officer

II-7


SCHEDULE II

TEXAS INSTRUMENTS

ALLOWANCE FOR LOSSES AND CASH-RELATED SPECIAL CHARGES
(IN MILLIONS OF DOLLARS)

YEARS ENDED DECEMBER 31, 1998, 1997, 1996

                                             BALANCE AT   ADDITIONS CHARGED                         BALANCE
                                             BEGINNING      TO COSTS AND                            AT END
                DESCRIPTION                   OF YEAR         EXPENSES        USAGE   ADJUSTMENTS   OF YEAR
                -----------                  ----------   -----------------   -----   -----------   -------
Allowance for losses:
  1998.....................................     $ 73            $101          $ (77)       --        $ 97
  1997.....................................     $ 90            $133          $(150)       --        $ 73
  1996.....................................     $ 45            $163          $(118)       --        $ 90
Note: Allowance for losses from uncollectible accounts, returns, etc., are deducted from accounts
      receivable in the balance sheet.
Cash-related special charges:
  1998.....................................     $148            $255          $(228)     $(20)       $155
  1997.....................................     $116            $152          $(116)     $ (4)       $148
  1996.....................................     $ 15            $145          $ (41)     $ (3)       $116
Notes: Adjustments are to reflect changes in estimated costs and are either reversals to income or
       increases in expense.

Cash-related activity for special charges is included in the above schedule. See analysis in the Restructuring Actions note to the financial statements for non-cash, as well as cash-related, activities for special charges.

S-1

SCHEDULE II

ACCOUNTS RECEIVABLE ALLOWANCES FOR POWER TRENDS
(IN THOUSANDS)

                                                               1997    1998    1999
                                                               ----    ----    ----
Balance at beginning of year................................   $35     $35     $45
Provision for doubtful accounts.............................     0      10      36
Provision for discounts, allowances and rebates.............    --      --      --
Write-offs for doubtful accounts, net of recoveries.........     0       0       0
Discounts, allowances and rebates taken.....................    --      --      --
                                                               ---     ---     ---
Balance at end of year......................................   $35     $45     $81
                                                               ===     ===     ===

S-2

INDEX TO EXHIBITS

   EXHIBIT
     NO.                               DESCRIPTION OF EXHIBIT
   -------                             ----------------------
 2                  -- Agreement and Plan of Merger, dated as of September 29,
                       1999, by and among Texas Instruments, Power Trends and
                       Power Acquisition Corp.*
 3(a)               -- Restated Certificate of Incorporation of Texas
                       Instruments.(1)
 3(b)               -- Certificate of Amendment to Restated Certificate of
                       Incorporation of Texas Instruments.(1)
 3(c)               -- Certificate of Amendment to Restated Certificate of
                       Incorporation of Texas Instruments.(1)
 3(d)               -- Certificate of Amendment to Restated Certificate of
                       Incorporation of Texas Instruments.(2)
 3(e)               -- Certificate of Ownership and Merger Merging Texas
                       Instruments Automation Controls, Inc. into Texas
                       Instruments.(1)
 3(f)               -- Certificate of Elimination of Designations of Preferred
                       Stock of Texas Instruments.(1)
 3(g)               -- Certificate of Ownership and Merger Merging Tiburon
                       Systems, Inc. into Texas Instruments.(3)
 3(h)               -- Certificate of Ownership and Merger Merging Tartan, Inc.
                       into Texas Instruments.(3)
 3(i)               -- Certificate of Designation relating to Texas Instruments'
                       Participating Cumulative Preferred Stock.(4)
 3(j)               -- Certificate of Elimination of Designation of Preferred
                       Stock of Texas Instruments.(5)
 3(k)               -- Bylaws of Texas Instruments.(6)
 4(a)(i)            -- Rights Agreement, dated as of June 18, 1998, between
                       Texas Instruments and Harris Trust and Savings Bank as
                       Rights Agent, which includes as Exhibit B the form of
                       Rights Certificate.(7)
 4(a)(ii)           -- Amendment, dated as of September 18, 1998, to the Rights
                       Agreement.(9)
 4(b)               -- Texas Instruments agrees to provide the Commission, upon
                       request, copies of instruments defining the rights of
                       holders of long-term debt of Texas Instruments and its
                       subsidiaries.
 5                  -- Opinion of Weil, Gotshal & Manges LLP.*
 8(a)               -- Opinion of Weil, Gotshal & Manges LLP regarding certain
                       tax matters.*
 8(b)               -- Opinion of Johnson and Colmar regarding certain tax
                       matters.*
10(a)(i)            -- Texas Instruments' Deferred Compensation Plan.(9)
10(a)(ii)           -- Amendment No. 1 to Texas Instruments' Deferred
                       Compensation Plan.(9)
10(a)(iii)          -- Amendment No. 2 to Texas Instruments' Deferred
                       Compensation Plan.(10)
10(a)(iv)           -- Amendment No. 3 to Texas Instruments' Deferred
                       Compensation Plan.(11)
10(b)               -- Texas Instruments' Long-term Incentive Plan.(11)
10(c)               -- Texas Instruments' 1996 Long-term Incentive Plan.(12)
10(d)               -- Texas Instruments' Executive Officer Performance
                       Plan.(12)
10(e)               -- Texas Instruments' Restricted Stock Unit Plan for
                       Directors.(13)
10(f)               -- Texas Instruments' Directors Deferred Compensation
                       Plan.(13)
10(g)               -- Texas Instruments' Stock Option Plan for Non-Employee
                       Directors.(15)
10(h)               -- Agreement and Plan of Merger, dated as of May 29, 1999,
                       by and among Texas Instruments, Telogy Networks, Inc. and
                       TNI Acquisition Corp. (exhibits and schedules
                       omitted).(14)


   EXHIBIT
     NO.                               DESCRIPTION OF EXHIBIT
   -------                             ----------------------
10(i)               -- Asset Purchase Agreement dated as of January 4, 1997
                       between Texas Instruments and Raytheon Company (exhibits
                       and schedules omitted).(15)
10(j)               -- Acquisition Agreement dated as of June 18, 1998 between
                       Texas Instruments and Micron Technology, Inc. (exhibit C
                       omitted).(16)
10(k)               -- Second Amendment to Acquisition Agreement dated as of
                       September 30, 1998 between Texas Instruments and Micron
                       Technology, Inc.(17)
10(l)               -- Securities Rights and Restrictions Agreement dated as of
                       September 30, 1998 between Texas Instruments and Micron
                       Technology, Inc.(5)
10(m)               -- Agreement and Plan of Merger, dated as of July 25, 1999,
                       by and among Texas Instruments, Unitrode, Inc. and
                       Unicorn Acquisition Corp.*
11                  -- Statement Regarding Computation of Per Share Earnings.*
21                  -- Subsidiaries of Texas Instruments.*
23(a)               -- Consent of Ernst & Young LLP.*
23(b)               -- Consent of Arthur Andersen LLP.*
23(c)               -- Consent of Weil, Gotshal & Manges LLP (included in
                       exhibits 5 and 8(a)).
23(d)               -- Consent of Johnson and Colmar (included in exhibit 8(b)).
24                  -- Powers of Attorney (included on the signature pages to
                       this registration statement).


* Filed herewith.

(1) Incorporated by reference to the Exhibits filed with Texas Instruments' Annual Report on Form 10-K for 1993.

(2) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.

(3) Incorporated by reference to the Exhibits filed with Texas Instruments' Registration Statement No. 333-41919 on Form S-8 filed December 10, 1997.

(4) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.

(5) Incorporated by reference to the Exhibits filed with Texas Instruments' Annual Report on Form 10-K for 1998.

(6) Incorporated by reference to the Exhibits filed with Texas Instruments' Current Report on Form 8-K dated December 4, 1997.

(7) Incorporated by reference to the Exhibits filed with Texas Instruments' Registration Statement on Form 8-A dated June 23, 1998.

(8) Incorporated by reference to the Exhibit filed with Texas Instruments' Amendment No. 1 to Form 8-A, dated September 23, 1998.

(9) Incorporated by reference to the Exhibits filed with Texas Instruments' Annual Report on Form 10-K for 1994.

(10) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

(11) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.

(12) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.


(13) Incorporated by reference to the Exhibits filed with Texas Instruments' Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.

(14) Incorporated by reference to the Exhibits filed with Texas Instruments' Registration Statement No. 333-80157 on Form S-4 filed June 8, 1999.

(15) Incorporated by reference to the Exhibits filed with Texas Instruments' Current Report on Form 8-K dated January 4, 1997.

(16) Incorporated by reference to the Exhibits filed with Texas Instruments' Current Report on Form 8-K dated June 18, 1998.

(17) Incorporated by reference to the Exhibits filed with Texas Instruments'

Current Report on Form 8-K dated October 15, 1998.


EXHIBIT 2

ANNEX A


MERGER AGREEMENT

DATED AS OF SEPTEMBER 29, 1999

BY AND AMONG

TEXAS INSTRUMENTS INCORPORATED,

POWER ACQUISITION CORP.,

AND

POWER TRENDS, INC.




TABLE OF CONTENTS

                                                                                 PAGE
                                                                                 ----
Article 1     Definitions......................................................    1
Article 2     The Transaction..................................................    2
        2.1   Merger...........................................................    2
        2.2   Closing..........................................................    2
        2.3   Closing Events...................................................    2
              (a)  Plan and Articles of Merger.................................    2
              (b)  Deliveries by the Company...................................    2
              (c)  Deliveries by Buyer and Subsidiary..........................    2
        2.4   Effect of Merger.................................................    3
              (a)  General.....................................................    3
              (b)  Corporate Organization......................................    3
              (c)  Conversion of Company's Shares..............................    3
              (d)  Company Treasury Shares.....................................    3
              (e)  Conversion of Subsidiary's Stock............................    4
        2.5   Exchange Fund and Procedures.....................................    4
              (a)  Exchange Fund...............................................    4
              (b)  Exchange Procedures.........................................    4
              (c)  Distributions with Respect to Unsurrendered Certificates....    4
              (d)  No Further Ownership Rights in Shares.......................    5
              (e)  No Fractional Shares of Buyer Common Stock..................    5
              (f)  Termination of Exchange Fund................................    5
              (g)  No Liability................................................    5
              (h)  Investment of the Exchange Fund.............................    5
              (i)  Lost Certificates...........................................    6
              (j)  Withholding Rights..........................................    6
              (k)  Stock Transfer Books........................................    6
              (l)  Affiliates..................................................    6
              (m)  Dissenters' Rights..........................................    6
              (n)  Stock Options...............................................    7
              (o)  Warrant Exercise............................................    7
Article 3     Representations and Warranties of the Company....................    7
        3.1   Organization.....................................................    7
        3.2   Authority........................................................    7
        3.3   Enforceability...................................................    8
        3.4   Capital Stock....................................................    8
        3.5   No Violation.....................................................    9
        3.6   No Consent Required..............................................    9
        3.7   Financial Statements.............................................    9
        3.8   Books and Records................................................    9
        3.9   Title to Assets..................................................    9
        3.10  Accounts Receivable..............................................    9
        3.11  Equipment........................................................    9
        3.12  Contracts........................................................   10
        3.13  Real Property....................................................   11
        3.14  Permits..........................................................   11
        3.15  Patents, Marks and Copyrights....................................   12
        3.16  Undisclosed Liabilities..........................................   13
        3.17  Taxes............................................................   13
        3.18  No Material Adverse Change.......................................   14

i

                                                                                 PAGE
                                                                                 ----
        3.19  Employee Benefits................................................   14
        3.20  Insurance........................................................   15
        3.21  Compliance.......................................................   16
        3.22  Legal Proceedings................................................   16
        3.23  Absence of Certain Events........................................   16
        3.24  Environmental Matters............................................   17
        3.25  Employees........................................................   18
        3.26  Labor Relations..................................................   18
        3.27  Certain Payments.................................................   18
        3.28  Related Persons..................................................   18
        3.29  Broker's Fee.....................................................   19
        3.30  Year 2000 Compliance.............................................   19
        3.31  Product Recalls..................................................   19
        3.32  Takeover Statutes................................................   20
        3.33  Information Supplied.............................................   20
        3.34  Accounting Matters...............................................   20
        3.35  Subsidies........................................................   20
        3.36  Disclosure.......................................................   20
Article 4     Representations and Warranties of Buyer and Subsidiary...........   21
        4.1   Organization.....................................................   21
        4.2   Authority........................................................   21
        4.3   Enforceability...................................................   21
        4.4   No Violation.....................................................   21
        4.5   No Consent Required..............................................   21
        4.6   Broker's Fee.....................................................   21
        4.7   SEC Reports; Financial Statements................................   21
        4.8   Information Supplied.............................................   22
        4.9   Accounting Matters...............................................   22
Article 5     Events Prior to Closing..........................................   22
        5.1   Conduct of Business..............................................   22
        5.2   Preparation of the S-4 and the Proxy Statement...................   22
        5.3   Letters of Accountants...........................................   23
        5.4   Shareholder Meeting..............................................   23
        5.5   Access to Information............................................   23
        5.6   Reasonable Best Efforts..........................................   23
        5.7   Other Filings....................................................   24
        5.8   Notice of Developments...........................................   25
        5.9   Acquisition Proposals............................................   25
        5.10  Public Announcements.............................................   26
        5.11  Tax-Free Reorganization Treatment................................   26
        5.12  Employee Matters.................................................   26
        5.13  Affiliate Letters................................................   26
        5.14  Fees and Expenses................................................   26
        5.15  Listing of Stock.................................................   27
        5.16  Comdisco Release.................................................   27
Article 6     Conditions to Closing............................................   27
        6.1   Conditions of Each Party.........................................   27
        6.2   Conditions of Buyer and Subsidiary...............................   27
        6.3   Conditions of the Company........................................   28
Article 7     Survival of Representations, Warranties, Covenants and
              Agreements; Escrow Provisions....................................   29
        7.1   Survival of Representations, Warranties, Covenants and
              Agreements.......................................................   29

ii

                                                                                 PAGE
                                                                                 ----
        7.2   Escrow Provisions................................................   29
              (a)  Establishment of the Escrow Fund............................   29
              (b)  Recourse to the Escrow Fund.................................   29
              (c)  Escrow Period; Distribution of Escrow Fund upon Termination
                   of Escrow Period............................................   30
              (d)  Protection of Escrow Fund...................................   30
              (e)  Claims Upon Escrow Fund.....................................   30
              (f)  Objections to Claims........................................   31
              (g)  Resolution of Conflicts.....................................   31
        7.3   Shareholder Representatives; Power of Attorney...................   31
              (a)  Shareholder Representatives.................................   31
              (b)  Exculpation.................................................   32
              (c)  Actions of the Shareholder Representatives..................   32
        7.4   Third Party Claims...............................................   32
        7.5   Depositary Agent's Duties........................................   32
              (a)  Limitation on Duties of Depositary Agent....................   32
              (b)  Compliance with Orders......................................   32
              (c)  Limitations on Liability of Depositary Agent................   33
              (d)  Good Faith of Depositary Agent..............................   33
              (e)  Non-responsibility of Depositary Agent......................   33
              (f)  Indemnification of Depositary Agent.........................   33
              (g)  Resignation of Depositary Agent.............................   33
              (h)  Fees........................................................   34
Article 8     Termination, Amendment and Waiver................................   34
        8.1   Termination by Mutual Agreement..................................   34
        8.2   Termination by Either Buyer or the Company.......................   34
        8.3   Termination by the Company.......................................   34
        8.4   Termination by Buyer.............................................   35
        8.5   Effect of Termination and Abandonment............................   35
        8.6   Amendment........................................................   35
        8.7   Extension; Waiver................................................   35
Article 9     Miscellaneous....................................................   36
        9.1   Confidentiality..................................................   36
        9.2   Notices..........................................................   36
        9.3   Further Assurances...............................................   37
        9.4   Entire Agreement.................................................   37
        9.5   Assignment.......................................................   37
        9.6   No Third Party Beneficiaries.....................................   37
        9.7   Severability.....................................................   37
        9.8   Captions.........................................................   37
        9.9   Construction.....................................................   37
        9.10  Counterparts.....................................................   38
        9.11  Governing Law....................................................   38
        9.12  Binding Effect...................................................   38

iii

MERGER AGREEMENT

This Agreement is entered into as of September 29, 1999 by Texas Instruments Incorporated, a Delaware corporation ("Buyer"), Power Acquisition Corp., an Illinois corporation and wholly-owned subsidiary of Buyer ("Subsidiary"), and Power Trends, Inc., an Illinois corporation (the "Company").

BACKGROUND

A. The Company is engaged in the business of manufacturing and selling integrated switching regulators and DC-to-DC converters with a focus on on-board modular power solutions.

B. This Agreement contemplates a transaction in which Subsidiary will merge with and into the Company, with (i) the Company becoming a wholly-owned subsidiary of Buyer and (ii) all of the issued and outstanding capital stock of the Company being converted into the right to receive shares of common stock, par value $1.00 per share, of Buyer (together with any associated right to acquire shares of the Cumulative Preferred Stock of Buyer pursuant to Buyer's Rights Plan (collectively, "Buyer Common Stock").

C. A portion of the shares of Buyer Common Stock otherwise issuable or reserved for issuance by Buyer in connection with the Merger shall be placed in escrow by Buyer, the release of which shall be contingent upon the occurrence of certain events and the satisfaction of certain conditions, all as set forth in Article 7.

D. As an inducement to Buyer and Subsidiary to enter into this Agreement, certain stockholders of the Company have concurrently herewith entered into a voting agreement in the form attached hereto as EXHIBIT A (the "Voting Agreement"), pursuant to which such stockholders have agreed to vote all shares of capital stock of the Company owned by them in favor of the Merger.

E. As an inducement to Buyer and Subsidiary to enter into this Agreement, Buyer, the Company and the employees of the Company identified therein have concurrently herewith entered into the employment agreements in the form attached hereto as EXHIBITS B-1, B-2, B-3, B-4, B-5 and B-6, which agreements shall become effective as of the Effective Time.

F. For federal income Tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

G. For accounting purposes, it is intended that the Merger shall be accounted for as a "pooling of interests."

Now, therefore, in consideration of their mutual promises and intending to be legally bound, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

Certain capitalized terms used in this Agreement are defined in ANNEX I.

A-1

ARTICLE 2

THE TRANSACTION

2.1 Merger. Upon the terms and subject to the conditions of this Agreement, Subsidiary shall merge with and into the Company (the "Merger") at the Effective Time. The Company shall be the corporation surviving the Merger (the "Surviving Corporation").

2.2 Closing. The closing of the transactions contemplated by this Agreement ("Closing") shall take place at a time and location to be specified by the Parties on November 30, 1999, or if later, on the second business day after satisfaction or waiver of the conditions set forth in Article 6 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions at the Closing).

2.3 Closing Events. At Closing, the following events shall take place, all of which shall be considered to take place concurrently:

(a) Plan and Articles of Merger. The Company and Subsidiary shall enter into a plan of merger consistent with the terms hereof and otherwise in form and substance reasonably satisfactory to the Parties (the "Plan of Merger") and execute articles of merger in form and substance reasonably satisfactory to the Parties (the "Articles of Merger"), to which the Plan of Merger is an exhibit, and shall file the Articles of Merger with the Secretary of State of the State of Illinois.

(b) Deliveries by the Company. The Company shall make or cause the following deliveries to Buyer and Subsidiary:

(1) the Company shall deliver an Officer's Certificate to Buyer and Subsidiary certifying that: (i) the Company's representations and warranties in Article 3 are true and correct in all material respects as of the Closing Date as if made at and as of Closing, (ii) the Company has performed in all material respects all of its obligations under this Agreement that it is required to perform prior to or at Closing; and
(iii) Shareholder Approval has been obtained;

(2) the Company shall deliver the written resignations, effective as of the Effective Time, of all of the Company's incumbent directors and officers other than those whom Buyer has specified by Notice to the Company at least five days prior to Closing; and

(3) Johnson and Colmar shall deliver to Buyer an opinion of counsel addressing such matters as reasonably requested by, and otherwise in form and substance reasonably satisfactory to, Buyer (the "Company Legal Opinion").

(c) Deliveries by Buyer and Subsidiary. Buyer and Subsidiary shall make the following deliveries:

(1) Buyer and Subsidiary shall deliver the shares of Buyer Common Stock issuable or reserved for issuance pursuant to the Merger in accordance with Sections 2.5(a) and 7.2(a);

(2) Buyer and Subsidiary shall deliver a joint Officers' Certificate to the Company (for delivery to the Shareholder Representatives) certifying that: (i) the representations and warranties of Buyer and Subsidiary in Article 4 are true and correct in all material respects on the Closing Date as if made at and as of Closing; and (ii) Buyer and Subsidiary have performed in all material respects all of their respective obligations under this Agreement that they are required to perform prior to or at Closing; and

(3) Weil, Gotshal & Manges LLP shall deliver to the Company an opinion of counsel addressing such matters as reasonably requested by, and otherwise in form and substance reasonably satisfactory to, the Company (the "Buyer Legal Opinion").

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2.4 Effect of Merger.

(a) General. The Merger shall become effective at the time (the "Effective Time") that the Secretary of State of the State of Illinois issues a certificate of merger in respect of the Articles of Merger. The Merger shall have the effects as set forth in the applicable provisions of the Illinois Business Corporation Act. The Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either the Company or Subsidiary in order to carry out and give effect to the Merger.

(b) Corporate Organization. As of the Effective Time, the articles of incorporation of the Company shall be amended and restated in accordance with the amended and restated articles of incorporation attached hereto as EXHIBIT C and such amended and restated articles of incorporation shall be the articles of incorporation of the Surviving Corporation. As of the Effective Time, the by-laws, officers and directors of Subsidiary shall be the by-laws, officers and directors of the Surviving Corporation.

(c) Conversion of Company's Shares. At and as of the Effective Time, the Shares shall be converted as follows:

(1) each share of Preferred Stock issued and outstanding immediately prior to the Effective Time (other than a Dissenting Share or shares held by the Company) shall be converted into the right to receive the number (rounded to the nearest ten thousandth) of fully paid and non-assessable shares of Buyer Common Stock equal to (i) the Exchange Ratio multiplied by (ii) 100; and

(2) each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than a Dissenting Share or shares held by the Company) shall be converted into the right to receive the number (rounded to the nearest ten thousandth) of fully paid and non- assessable shares of Buyer Common Stock equal to the Exchange Ratio.

For purposes of this Agreement, the "Exchange Ratio" shall be determined by dividing $8.67 by the Average Buyer Stock Price. As used herein, the "Average Buyer Stock Price" means the average of the daily high and low sales prices, regular way, of one share of Buyer Common Stock (rounded to the nearest thousandth) on the New York Stock Exchange ("NYSE") (as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another nationally recognized source) during the 20 consecutive trading day period ending on the second trading day prior to the Effective Time; provided, however, that (i) subject to Section 8.3(b), if the Average Buyer Stock Price is less than $67.00, the Average Buyer Stock Price for purposes of determining the Exchange Ratio shall be equal to $67.00 (the "Minimum Average Buyer Stock Price"), and (ii) subject to
Section 8.4(b), if the Average Buyer Stock Price is greater than $107.00, the Average Buyer Stock Price for purposes of determining the Exchange Ratio shall be equal to $107.00 (the "Maximum Average Buyer Stock Price"). If between the date of this Agreement and the Effective Time Buyer changes (or establishes a record date for changing) the outstanding shares of Buyer Common Stock into a different number of shares or a different class of shares as a result of any stock dividend, subdivision, reclassification, recapitalization, split (including a reverse split), combination, exchange of shares or extraordinary dividend (in cash or otherwise), or any similar event, then the Average Buyer Stock Price, the Minimum Average Buyer Stock Price and the Maximum Average Buyer Stock Price shall be appropriately adjusted to the extent necessary to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, extraordinary dividend or such similar event. All such shares of Buyer Common Stock issued pursuant to this Section 2.4(c), together with any cash in lieu of fractional shares of Buyer Common Stock to be paid pursuant to Section 2.5(e), are collectively referred to herein as the "Merger Consideration."

(d) Company Treasury Shares. At and as of the Effective Time, each share of Common Stock owned by the Company shall become one share of common stock of the Surviving Corporation and

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each share of Preferred Stock owned by the Company shall be converted into 100 shares of common stock of the Surviving Corporation, all of which shall be held in treasury.

(e) Conversion of Subsidiary's Stock. At and as of the Effective Time, each share of Subsidiary's common stock, par value $.01 per share, shall be converted into one share of common stock of the Surviving Corporation.

2.5 Exchange Fund and Procedures.

(a) Exchange Fund. Prior to the Effective Time, Buyer shall appoint a commercial bank or trust company reasonably acceptable to the Company to act as exchange agent hereunder for the purpose of exchanging Shares for the Merger Consideration (the "Exchange Agent"). At or prior to the Effective Time, Buyer shall deposit with the Exchange Agent, in trust for the benefit of holders of Shares, certificates representing the Buyer Common Stock issuable pursuant to Section 2.4(c) in exchange for outstanding Shares less the shares of Buyer Common Stock constituting the Escrow Fund (which will be deposited with the Depositary Agent pursuant to the provisions of Article 7). Buyer agrees to make available to the Exchange Agent from time to time as needed, cash sufficient to pay cash in lieu of fractional shares pursuant to Section 2.5(e) and any dividends and other distributions pursuant to Section 2.5(c). Any cash and certificates of Buyer Common Stock deposited with the Exchange Agent shall hereinafter be referred to as the "Exchange Fund."

(b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall use commercially reasonable efforts to cause the Exchange Agent to mail to each holder of a certificate or certificates which, immediately prior to the Effective Time, represented outstanding Shares (the "Certificates") (i) a letter of transmittal which shall specify that delivery shall be effective, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent, and which letter shall be in customary form and have such other provisions as Buyer may reasonably specify; and (ii) instructions for effecting the surrender of such Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate to the Exchange Agent together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor (A) shares of Buyer Common Stock representing, in the aggregate, the whole number of shares that such holder has the right to receive pursuant to
Section 2.4(c) (after taking into account all Shares then held by such holder), less the number of shares of Buyer Common Stock that are to be contributed on the holder's behalf and deposited into the Escrow Fund, and (B) a check in the amount equal to the cash that such holder has the right to receive pursuant to the provisions of this Article 2, including cash in lieu of any dividends and other distributions pursuant to Section 2.5(c) and cash in lieu of fractional shares pursuant to Section 2.5(e). No interest will be paid or will accrue on any cash payable pursuant to
Section 2.5(c) or Section 2.5(e). In the event of a transfer of ownership of Common Stock or Preferred Stock that is not registered in the transfer records of the Company, a certificate evidencing, in the aggregate, the proper number of shares of Buyer Common Stock, a check in the proper amount of cash in lieu of any fractional shares of Buyer Common Stock pursuant to
Section 2.5(e) and any dividends or other distributions to which such holder is entitled pursuant to Section 2.5(c), may be issued with respect to such Shares to such a transferee if the Certificate representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer Taxes have been paid.

(c) Distributions with Respect to Unsurrendered Certificates. No dividends or other distributions declared or made with respect to shares of Buyer Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Buyer Common Stock that such holder would be entitled to receive upon surrender of such Certificate and no cash payment in lieu of fractional shares of Buyer Common Stock shall be paid to any such holder pursuant to Section 2.5(e) until such holder shall surrender such Certificate in

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accordance with Section 2.5(b). Subject to the effect of applicable Laws, following surrender of any such Certificate, there shall be paid to such holder of shares of Buyer Common Stock issuable in exchange therefor, without interest, (a) promptly after the time of such surrender, the amount of any cash payable in lieu of fractional shares of Buyer Common Stock to which such holder is entitled pursuant to Section 2.5(e) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Buyer Common Stock, and (b) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such whole shares of Buyer Common Stock.

(d) No Further Ownership Rights in Shares. All shares of Buyer Common Stock issued and cash paid upon conversion of the Shares in accordance with the terms of Article 2 (including any cash paid pursuant to Sections 2.5(c) and 2.5(e)) shall be deemed to have been issued or paid in full satisfaction of all rights pertaining to the Shares.

(e) No Fractional Shares of Buyer Common Stock. No certificates or scrip representing fractional shares of Buyer Common Stock or book-entry credit of the same shall be issued upon the surrender for exchange of Certificates and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a stockholder of Buyer or a holder of shares of Buyer Common Stock. Notwithstanding any other provision of this Agreement, each holder of Shares exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Buyer Common Stock (after taking into account all Certificates delivered by such holder and the deposit of Buyer Common Stock in the Escrow Fund) shall receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Buyer Common Stock multiplied by (ii) the closing price on the NYSE (as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another nationally recognized source) for a share of Buyer Common Stock on the date of the Effective Time. As promptly as practicable after the determination of the aggregate amount of cash to be paid to holders of fractional interests, the Exchange Agent shall notify Buyer and Buyer shall cause the Surviving Corporation to deposit such amount with the Exchange Agent and shall cause the Exchange Agent to forward payments to such holders of fractional interests subject to and in accordance with the terms hereof.

(f) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of Certificates for six months after the Effective Time shall be delivered to the Surviving Corporation or otherwise on the instruction of the Surviving Corporation, and any holders of the Certificates who have not theretofore complied with this Article 2 shall thereafter look only to the Surviving Corporation and Buyer for the Merger Consideration with respect to the Shares formerly represented thereby to which such holders are entitled pursuant to Section 2.4(c) and 2.5(b), any cash in lieu of fractional shares of Buyer Common Stock to which such holders are entitled pursuant to Section 2.5(e) and any dividends or distributions with respect to shares of Buyer Common Stock to which such holders are entitled pursuant to Section 2.5(c). Any such portion of the Exchange Fund remaining unclaimed by holders of Shares five years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Authority) shall, to the extent permitted by Law, become the property of the Surviving Corporation free and clear of any claims or interest of any Person previously entitled thereto.

(g) No Liability. None of Buyer, the Subsidiary, the Company, the Surviving Corporation or the Exchange Agent shall be liable to any Person in respect of any Merger Consideration from the Exchange Fund delivered, in good faith, to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(h) Investment of the Exchange Fund. The Exchange Agent shall invest any cash included in the Exchange Fund as directed by Buyer on a daily basis. Any interest and other income resulting from such investments shall promptly be paid to Buyer.

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(i) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity by such Person against any claim that may be made against the Surviving Corporation with respect to such Certificate, the Exchange Agent will deliver in exchange for such lost, stolen or destroyed Certificate the applicable Merger Consideration with respect to the Shares formerly represented thereby, and unpaid dividends and distributions on shares of Buyer Common Stock deliverable in respect thereof, pursuant to this Agreement.

(j) Withholding Rights. Each of the Surviving Corporation and Buyer shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code, the rules and regulations promulgated thereunder, or any provision of a Tax Law. To the extent that amounts are so withheld by the Surviving Corporation or Buyer, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect to which such deduction and withholding was made by the Surviving Corporation or Buyer, as the case may be.

(k) Stock Transfer Books. The stock transfer books of the Company shall be closed immediately upon the Effective Time and there shall be no further registration of transfers of Shares thereafter on the records of the Company. On or after the Effective Time, any Certificates presented to the Exchange Agent or Buyer for any reason shall be converted into the Merger Consideration with respect to the Shares formerly represented thereby, and any dividends or other distributions to which the holders thereof are entitled pursuant to Section 2.5(c).

(l) Affiliates. Notwithstanding anything to the contrary herein, no shares of Buyer Common Stock or cash shall be delivered to a Person who may be deemed an "affiliate" of the Company in accordance with Section 5.13 for purposes of Rule 145 under the Securities Act, or for purposes of qualifying the Merger for "pooling of interests" under APB 16 and the applicable SEC rules and regulations until such Person has executed and delivered to Buyer the written agreement contemplated by Section 5.13.

(m) Dissenters' Rights. Notwithstanding anything in this Agreement to the contrary, those Shares ("Dissenting Shares") that are issued and outstanding immediately prior to the Effective Time and which are held by shareholders who did not vote in favor of the Merger and have complied with all of the relevant provisions of Section 5/11.70 of the Illinois Business Corporation Act ("Dissenting Shareholders") shall not be converted into or be exchangeable for the right to receive the Merger Consideration, but shall instead represent only the rights of a dissenting shareholder under
Section 5/11.70 of the Illinois Business Corporation Act, including the right to obtain payment for the estimated fair value of those shares, plus accrued interest, as provided under the Illinois Business Corporation Act, unless and until such holders shall have failed to perfect or shall have effectively withdrawn or lost their rights to appraisal under the Illinois Business Corporation Act. If any Dissenting Shareholder shall have failed to perfect or shall have effectively withdrawn or lost such right, such holder's Shares shall thereupon be converted into and become exchangeable for the right to receive, as of the Effective Time, the Merger Consideration without any interest thereon. The Company shall give Buyer
(i) prompt notice of any written demands for appraisal of any Shares, attempted withdrawals of such demands and any other instruments served pursuant to the Illinois Business Corporation Act and received by the Company relating to shareholders' rights of appraisal, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal. Neither the Company nor the Surviving Corporation shall, except with the prior written consent of Buyer, voluntarily make any payment with respect to, or settle or offer to settle, any such demand for payment. If any Dissenting Shareholder shall fail to perfect or shall have effectively withdrawn or lost the right to dissent, the Shares held by such Dissenting Shareholder shall thereupon

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be treated as though such Shares had been converted into the right to receive the Merger Consideration pursuant to Section 2.4(c).

(n) Stock Options. As soon as practicable following the date of this Agreement, Buyer and the Company (or, if appropriate, any committee of the Board of Directors of the Company administering the Company's stock option plans (collectively, the "Company Option Plans")) shall take such action and the Company shall obtain all such agreements and consents, if any, as may be required to effect the following provisions of this Section 2.5(n). As of the Effective Time each option to purchase shares of Common Stock pursuant to the Company Option Plans (a "Company Stock Option") which is then outstanding shall be assumed by Buyer and converted into an option (or, at Buyer's election, Buyer may grant a new substitute option under the terms of Buyer's stock option plan) (an "Assumed Stock Option") to purchase the number of shares of Buyer Common Stock (rounded up to the nearest whole share) equal to (x) the number of shares of Common Stock subject to such option multiplied by (y) the Exchange Ratio, at an exercise price per share of Buyer Common Stock (rounded down to the nearest penny) equal to (A) the former exercise price per share of Common Stock under such option immediately prior to the Effective Time divided by (B) the Exchange Ratio; provided, however, that in the case of any Company Stock Option to which
Section 421 of the Internal Revenue Code applies by reason of its qualification under Section 422 of the Internal Revenue Code, the conversion formula shall be adjusted, if necessary, to comply with Section 424(a) of the Internal Revenue Code. Except as provided above, each Assumed Stock Option shall be subject to the same expiration date and vesting provisions as were applicable to such converted Company Stock Option immediately prior to the Effective Time. Promptly after the Effective Time, Buyer shall use its reasonable best efforts to prepare and file with the SEC a registration statement on Form S-8 or other appropriate form with respect to shares of Buyer Common Stock subject to the Assumed Stock Options and to maintain the effectiveness of such registration statement or registration statements covering such Assumed Stock Options (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such Assumed Stock Options remain outstanding. Buyer shall take all corporate action necessary to reserve for issuance under an appropriate stock option plan of Buyer a sufficient number of shares of Buyer Common Stock for delivery upon exercise of the options described above.

(o) Warrant Exercise. As soon as practicable after the date of this Agreement, the Company shall secure the agreement of the holder of that certain outstanding warrant to purchase 30,833 shares of Common Stock (the "Warrant") to exercise the Warrant prior to the Effective Time and shall confirm to Buyer the consummation of such exercise prior to the Effective Time.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

In order to induce Buyer and Subsidiary to enter into this Agreement, the Company represents and warrants to Buyer and Subsidiary, except to the extent that any statement in this Article 3 is qualified or limited by an exception in the Disclosure Schedule, as follows:

3.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Illinois, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform its obligations under all Contracts. The Company is duly qualified to do business as a foreign corporation and is in good standing under the Laws of each state or other jurisdiction in which qualification is required by Law. The Company has delivered copies to Buyer and Subsidiary of the Company's Organizational Documents.

3.2 Authority. The Company has the power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. As of the date hereof, a duly constituted special committee of the board, with full delegated authority to act in respect hereof, has by unanimous vote of

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the members thereof, duly and validly authorized the execution and delivery of this Agreement and the Voting Agreement and approved the consummation of the transactions contemplated hereby and thereby and has resolved to recommend that the shareholders of the Company approve and adopt the Merger on substantially the terms and conditions set forth in this Agreement. The Company's execution and delivery of this Agreement and, subject to receipt of Shareholder Approval, consummation of the Merger and related transactions contemplated hereby, have been duly authorized by all necessary action required by the Company's Organizational Documents and the Illinois Business Corporation Act.

3.3 Enforceability. This Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms except as enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

3.4 Capital Stock.

(a) The Company's authorized capital stock consists of 17,000,000 shares of Common Stock, no par value, and 137,800 shares of Preferred Stock, no par value, consisting of 17,500 shares designated as Series A-1 Convertible Preferred Stock, 10,000 shares designated as Series A-2 Convertible Preferred Stock, 6,250 shares designated as Series A-3 Convertible Preferred Stock, 77,050 shares designated as Series A-4 Convertible Preferred Stock, and 27,000 shares designated as Series B-1 Convertible Preferred Stock.

(b) The Company has 3,071,695 shares of Common Stock issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable, and none of which was issued in violation of the Securities Act or any state securities or other Law or in violation of or subject to any preemptive rights. The Company holds no issued shares of Common Stock in treasury. No Common Stock is held by any subsidiary of the Company.

(c) The Company has 125,740 shares of Preferred Stock issued and outstanding, consisting of 17,500 shares of Series A-1 Convertible Preferred Stock, 10,000 shares of Series A-2 Convertible Preferred Stock, 6,250 shares of Series A-3 Convertible Preferred Stock, 66,375 shares of Series A-4 Convertible Preferred Stock, and 25,615 shares of Series B-1 Convertible Preferred Stock, all of which are duly authorized, validly issued, fully paid and nonassessable, and none of which was issued in violation of the Securities Act or any state securities or other Law or in violation of or subject to any preemptive rights. The Company holds no issued shares of Preferred Stock in treasury (including through any subsidiary).

(d) There are outstanding Options to purchase a total of 1,056,086 shares of Common Stock as listed on Schedule 3.4(d). Schedule 3.4(d) correctly sets forth with respect to each Option, the name of the holder thereof, the number of underlying shares, the date of grant, the applicable vesting schedule and the exercise price thereunder.

(e) Except as set forth in Sections 3.4(b) and 3.4(c), there are no outstanding shares of capital stock or other equity securities of the Company nor are there any equity equivalents, interests in the ownership or earnings of the Company or other similar rights (including stock appreciation rights). Except as disclosed on Schedule 3.4(d), and except for the Warrant, there are no securities of the Company convertible into or exchangeable for shares of capital stock or other equity securities of the Company or options, warrants, calls, puts, subscription rights, conversion rights or other Contracts to which the Company is party or by which the Company is bound providing for the Company's issuance of any Preferred or Common Stock or any other equity securities.

(f) Except for (i) Corporate Governance Agreements and (ii) redemption obligations under Article Four of the Company's Articles of Incorporation, there are no shareholders agreements, buy-sell agreements, voting trusts or other Contracts to which the Company is a party or by which it is bound relating to the voting or disposition of any Shares or creating any obligation of the Company to repurchases, redeem or otherwise acquire or retire any Shares or any Options.

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(g) Except for all of the issued and outstanding capital stock of the Foreign Sales Corporation, the Company does not own any shares of capital stock of or other equity interest in any corporation or other Person.

3.5 No Violation. Subject only to obtaining the Shareholder Approval, the Company's execution, delivery and performance of this Agreement will not either directly or indirectly (and with or without Notice or the passage of time or both):

(a) violate or conflict with the Company's Organizational Documents or with any resolution adopted by its boards of directors;

(b) result in a breach of or default under any Contract to which the Company is a party or by which it is bound;

(c) result in the imposition or creation of a Lien upon any of the assets of the Company; or

(d) violate or conflict with, or give any Governmental Authority or other Person the right to challenge the Merger or to obtain any other relief under, any Law or Order to which the Company is subject.

3.6 No Consent Required. Except as required by HSR or as disclosed in Schedule 3.6, the Company's execution, delivery and performance of this Agreement do not require any Notice to, filing with, Permit from or other Consent of any Governmental Authority or other Person.

3.7 Financial Statements. The Company has delivered copies of the Financial Statements to Buyer and Subsidiary. The Financial Statements fairly present in all material respects the Company's financial position, results of operations and cash flows as of the dates indicated and for the years then ended, in conformity with GAAP.

3.8 Books and Records. The Books and Records of the Company are complete and correct and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal accounting controls. The corporate minute books of the Company contain accurate and complete records of all meetings and corporate actions taken by written consent of the Company's boards of directors and shareholders. At Closing, all of the Books and Records of the Company (including its corporate minute books) will be in its possession.

3.9 Title to Assets. The Company owns or has a leasehold interest in all of the tangible and intangible assets of any type or kind that it purports to own or lease, including (i) all of the assets which are reflected in the June 30 Balance Sheet except for assets which were sold or disposed of after June 30, 1999 in the Ordinary Course of Business and (ii) all of the assets which were purchased or otherwise acquired after June 30, 1999 and which were not sold or disposed of prior to the date of this Agreement in the Ordinary Course of Business. The Company has good and marketable title to all of these assets, free and clear of any Liens (except as disclosed in Schedule 3.9), and they constitute all of the tangible and intangible assets relating to or used, held for use or useful in the conduct of the Business and are sufficient to enable the Business to be operated in the same manner that it is currently operated.

3.10 Accounts Receivable. Except as disclosed in Schedule 3.10, the Company's Accounts Receivable: represent valid obligations and have arisen solely out of bona fide sales and deliveries of goods, performance of services and other business transactions made in the Ordinary Course of Business; to the Company's Knowledge, are not subject to valid defenses, set-off or counterclaims; and, to the Company's Knowledge, are collectible at the full recorded amount thereof less, in the case of accounts receivable appearing on the June 30 Balance Sheet, the recorded allowance for collection of doubtful accounts on the June 30 Balance Sheet. The allowance for collection of doubtful accounts on the June 30 Balance Sheet has been determined in accordance with GAAP consistent with past practice.

3.11 Equipment. Schedule 3.11 contains complete and accurate lists of all of the Company's Equipment having a purchase price of more than $10,000, identifying each piece of Equipment by vendor, description, model number, serial number and department.

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3.12 Contracts.

(a) Schedule 3.12(a) consists of subschedules which contain complete and accurate lists of the following Contracts of the Company as of the date of this Agreement (listing each Contract only once if more than one listing otherwise would be required):

(1) all unfilled purchase orders and other Contracts for the purchase of the Company's products in an amount exceeding $25,000 (Schedule 3.12(a)(1));

(2) all Equipment Leases, identifying each Equipment Lease by (i) vendor, description, model number, serial number and department of the piece of Equipment in question and (ii) lessor, lessee, term of lease and rent payable (Schedule 3.12(a)(2));

(3) all Facility Leases and Former Facility Leases, identifying each Facility Lease and Former Facility Lease by (i) name, location and use of the Facility in question, and (ii) for each Facility Lease, lessor, lessee, term of lease and rent payable, and also identifying any related Leasehold Improvements by location, description and cost (Schedule 3.12(a)(3));

(4) all Contracts (or series of related Contracts) for the purchase or sale of raw materials, parts, supplies, products or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than six months or involve payments in an amount exceeding $25,000 (Schedule 3.12(a)(4));

(5) all Contracts evidencing or securing any Liability of the Company (Schedule 3.12(a)(5));

(6) all Contracts with distributors and sales representatives (Schedule 3.12(a)(6));

(7) all Contracts with any Related Party (Schedule 3.12(a)(7));

(8) all Contracts by which the Company has guaranteed the contractual performance of or any payment by another Person (Schedule 3.12(a)(8));

(9) all powers of attorney and other Contracts by which the Company has authorized another Person to act as its attorney-in-fact or agent (Schedule 3.12(a)(9));

(10) all Contracts creating a partnership or joint venture with another Person or involving a sharing of profits, losses, costs or Liabilities with another Person (Schedule 3.12(a)(10));

(11) all Contracts that restrict or purport to restrict the geographical area or scope of the business activities of the Company or that limit or purport to limit the freedom of the Company to engage in any line of business or to compete with any Person (Schedule 3.12(a)(11));

(12) all Contracts granting a right of first refusal or first negotiation;

(13) all Contracts pertaining to employee compensation, employment, termination of employment or consulting services, including any agreement that could result in any benefit payable to any Person in connection with the transactions contemplated hereby (Schedule 3.12(a)(13));

(14) all Contracts (or series of related Contracts) entered into outside of the Ordinary Course of Business and involving the expenditure or receipt by any party of an amount exceeding $10,000 (Schedule 3.12(a)(14));

(15) all Contracts requiring the payment of royalty for use of any intellectual property (Schedule 3.12(a)(15));

(16) all Contracts providing for the license of any intellectual property of the Company to third parties or by any third party to the Company (Schedule 3.12(a)(16)); and

(17) all Corporate Governance Agreements (Schedule 3.12(a)(17)).

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The Company has delivered to Buyer and Subsidiary (i) copies of all written Contracts listed on Schedule 3.12(a), (ii) a written description of all oral Contracts, if any, listed on Schedule 3.12(a), (iii) copies of all written amendments or modifications of or supplements to the Contracts listed on Schedule 3.12(a), and (iv) a written description of all oral amendments or modifications of or supplements to the Contracts listed on Schedule 3.12(a), if any.

(b) Except as disclosed in Schedule 3.12(b), each Contract listed on Schedule 3.12(a) (i) is legal, valid, binding, enforceable in accordance with its terms, and in full force and effect and (ii) will continue to be legal, valid, binding, enforceable in accordance with its terms, and in full force and effect on identical terms following consummation of the Merger.

(c) Except as disclosed in Schedule 3.12(c):

(1) no party to a Contract listed on Schedule 3.12(a) is in Default in any material respect under the Contract, and no event has occurred or circumstance exists that (with or without Notice or the passage of time, or both) could result in a Default in a material respect under a Contract listed on Schedule 3.12(a) or could give any party to a Contract listed on Schedule 3.12(a) the right to exercise any remedy under the Contract or to cancel, terminate or modify the Contract;

(2) the Company has not given Notice to or received Notice from any other Person relating to an alleged, possible or potential Default under any Contract listed on Schedule 3.12(a);

(3) each purchase order and other Contract listed in Schedule 3.12(a)(1) has been entered into in the Ordinary Course of Business and without the commission of any act, either alone or in concert with any other Person, and without any consideration having been paid or promised, that is or would be in violation of any Law or Order; and

(4) for each Facility Lease listed in Schedule 3.12(a)(3), the Company (i) has a good and valid leasehold interest in such Facility Lease free and clear of all Liens, except (x) Taxes and general and special assessments not in default and payable without penalty and interest, and (y) easements, covenants and other restrictions that do not materially impair the current use, occupancy, or value, or the marketability of the Company's interest in such real property; (ii) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered its leasehold interest in the Facility Lease; and
(iii) all facilities located in or benefiting the Facility Lease are now, and will be at the time of Closing, in good operating condition and repair and, to the Company's Knowledge, structurally sound and free of defects, with no material alterations or repairs required thereto under applicable Laws, Permits or insurance company requirements, to the Company's Knowledge. All such facilities are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer, and storm sewer, all of which services are adequate in accordance with all applicable Laws.

3.13 Real Property. The Company does not own and has not owned, and any current, or former, subsidiaries or corporate predecessors-in-interest do not own and have not owned, any Real Property.

3.14 Permits.

(a) Schedule 3.14(a) contains a complete and accurate list of all Permits held by the Company as of the date of this Agreement. The Company has delivered copies to Buyer and Subsidiary of all Permits listed on Schedule 3.14(a).

(b) Except as disclosed in Schedule 3.14(b):

(1) all Permits listed on Schedule 3.14(a) are valid and in full force and effect, and no other Permits are required for the lawful conduct of the Business as it is currently conducted;

(2) the Company has conducted the Business in compliance in all material respects with the Permits listed on Schedule 3.14(a);

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(3) no event has occurred or circumstance exists that (with or without Notice or the passage of time or both) could (i) constitute or result in a violation of or failure to comply with any Permit listed on Schedule 3.14(a) or (ii) result in the revocation, withdrawal, suspension, cancellation, termination or material modification of any Permit listed;

(4) the Company has not received any written or oral Notice from any Governmental Authority or other Person regarding (i) any actual, alleged or potential violation of or failure to comply with any Permit listed on Schedule 3.14(a) or (ii) any actual, proposed or potential revocation, withdrawal, suspension, cancellation, termination or modification of any Permit listed; and

(5) the Company has duly filed on a timely basis all applications that were required to be filed for the renewal of the Permits listed on Schedule 3.14(a) and have duly made on a timely basis all other filings required to have been made in respect of the Permits listed.

3.15 Patents, Marks and Copyrights.

(a) Schedule 3.15(a) consists of three subschedules and contains complete and accurate lists of the following intellectual property of the Company as of the date of this Agreement:

(1) all Patents (Schedule 3.15(a)(1));

(2) all Marks (Schedule 3.15(a)(2)); and

(3) all Copyrights (Schedule 3.15(a)(3)).

The Company has delivered copies to Buyer and Subsidiary of all Patents, Marks and Copyrights listed on Schedule 3.15(a).

(b) The Patents, Marks and Copyrights listed on Schedule 3.15(a) are all those necessary for the conduct of the Business as it is currently conducted. Except as disclosed in Schedule 3.15(b), the Company owns, free and clear of any Liens, or has a royalty-free, exclusive, perpetual and irrevocable license to use, all of the Patents, Marks and Copyrights listed on Schedule 3.15(a).

(c) Except as disclosed in Schedule 3.15(c):

(1) all of the issued Patents listed on Schedule 3.15(a)(1) are currently in compliance with formal legal requirements (including payment of filing, examination and maintenance fees and proofs of working or use) and are valid and enforceable;

(2) no Patent listed on Schedule 3.15(a)(1) is or has been involved in any interference, reissue, reexamination or opposition proceeding, and to the Company's Knowledge, none is Threatened; and

(3) to the Company's Knowledge, (i) there is no potentially interfering Patent of any other Person and (ii) no issued Patent listed on Schedule 3.15(a)(1) is being or has been infringed or is being or has been challenged or threatened in any way.

(d) Except as disclosed in Schedule 3.15(d):

(1) all of the Marks listed on Schedule 3.15(a)(2) that have been registered with any Governmental Authority are currently in compliance with formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications) and are valid and enforceable;

(2) no Mark listed on Schedule 3.15(a)(2) is or has been involved in any opposition, invalidation or cancellation and, to the Company's Knowledge, none is Threatened; and

(3) to the Company's Knowledge, (i) there is no potentially interfering Mark of any other Person and (ii) no Mark listed on Schedule 3.15(a)(2) is being or has been infringed or is being or has been challenged or threatened in any way.

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(e) The Company has taken all actions reasonably necessary or appropriate to protect its Proprietary Information. Each employee of the Company has executed a written assignment of inventions to the Company, and each third party technical consultant or contractor of the Company has executed a written assignment of inventions, copyrights and obligation of confidentiality in favor of the Company.

(f) To the Company's Knowledge, no employee of the Company has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign or disclose information concerning his work to any Person other than the Company.

(g) The Company possesses all Proprietary Rights necessary for the conduct of the Business as presently conducted. The conduct of the Business as presently conducted does not infringe upon any intellectual property rights of any third party.

(h) Except as set forth on Schedule 3.15(h), the Company has not licensed any intellectual property of the Company to any third party.

3.16 Undisclosed Liabilities. Except as disclosed in Schedule 3.16, as of the date of this Agreement the Company does not have, and as of Closing the Company will not have, any Liabilities except for (i) Liabilities reflected on the June 30 Balance Sheet and (ii) Liabilities that have arisen since June 30, 1999 in the Ordinary Course of Business.

3.17 Taxes.

(a) The Company has filed all Tax Returns that it was required to file prior to the date of this Agreement and will file all Tax Returns that it may become required to file on or after the date of this Agreement and on or prior to the Closing Date. All Tax Returns that the Company filed prior to the date of this Agreement were correct and complete in all material respects, and all Taxes due in connection with these returns have been paid. All Tax Returns that the Company files on or after the date of this Agreement and prior to the Closing Date will be correct and complete in all material respects, and all Taxes due in connection with these returns will be paid when due.

(b) No Tax Return that the Company filed prior to the date of this Agreement is currently under audit or examination, and the Company has not received Notice from any Governmental Authority that (i) any Tax Return that it filed will be audited or examined or that (ii) it is or may be liable for additional Taxes in respect of any Tax Return or for the payment of Taxes in respect of a Tax Return that it did not file (because, for example, it believed that it was not subject to taxation by the jurisdiction in question).

(c) The Company has withheld and paid to the proper Governmental Authority all Taxes that it was required to withhold and pay in respect of compensation or other amounts paid to any employee or independent contractor.

(d) The Company did not have any delinquent Taxes as of June 30, 1999, and the reserve for Taxes reflected on the June 30 Balance Sheet was adequate for all unpaid Taxes.

(e) Except as disclosed in Schedule 3.17(e), the Company has not extended the time in which to file any Tax Return, waived the statute of limitations for any Tax or agreed to any extension of time for a Tax assessment or deficiency.

(f) The Company has not filed a consent under sec. 341(f) of the Internal Revenue Code (relating to collapsible corporations) or made any payments, or is or could become obligated under an existing Contract (including a stock option) to make any payments, that are not deductible under sec. 280G of the Internal Revenue Code (relating to "golden parachute" payments).

(g) Schedule 3.17(g) lists all Tax Returns that the Company has filed since January 1, 1997. The Company has delivered copies to Buyer and Subsidiary of all of the Tax Returns listed on Schedule 3.17(g). The Company is not a party to any agreement providing for the allocation or

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sharing of Taxes. The Company does not have any liability under Treasury Regulation Section 1.1502-6 or any similar provision of Law for U.S. federal income Taxes or any other Tax of any Person other than itself.

(h) The Company is not currently, has not been within the last five years, and does not anticipate becoming a "United States real property holding company" within the meaning of Section 897(c) of the Internal Revenue Code.

(i) The Company has not constituted either a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the Internal Revenue Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Internal Revenue Code (i) in the two years prior to the date of this Agreement or (ii) in a distribution which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Internal Revenue Code) in conjunction with the Merger.

3.18 No Material Adverse Change. Since June 30, 1999, there has not been any material adverse change in the Company's financial position, results of operations or assets, and no event has occurred or circumstance exists relating to the Company specifically (as opposed to the electronics industry or the United States economy generally) that has had or could reasonably be expected to have a Material Adverse Effect.

3.19 Employee Benefits.

(a) Schedule 3.19(a) contains a complete and accurate list of all Employee Benefit Plans under which the Company has any obligation or liability (contingent or otherwise). The Company has delivered complete and correct copies to Buyer and Subsidiary of all written Employee Benefit Plans listed on Schedule 3.19(a) (including the plan documents and all related trust agreements, insurance policies and other Contracts) and a written description of all oral Employee Benefit Plans so listed. The Company has also delivered to Buyer and Subsidiary copies of the most recent summary plan description, annual report (IRS Form 5500 series), summary annual report, financial statements, actuarial report and Internal Revenue Service favorable determination letter for each plan listed (to the extent applicable). The Company has also delivered correct and complete copies of the forms of stock option agreements used to make grants under the Company Option Plans.

(b) Except as disclosed in Schedule 3.19(b), in the case of each Employee Benefit Plan listed on Section 3.19(a):

(1) the plan (and each related trust or insurance policy) complies in form and in operation in all respects with the applicable requirements of ERISA, the Internal Revenue Code and any other Law (or complied in form and operation while the Company maintained or contributed to or was bound by the plan or its employees participated in the plan, and, to the Company's Knowledge, there are no failures to comply with applicable Law prior thereto);

(2) all required contributions to or premiums or other payments in respect of the plan have been timely paid;

(3) there have been no "prohibited transactions" (as defined in sec. 406 of ERISA and sec. 4975 of the Internal Revenue Code) in respect of the plan; and

(4) no Suit in respect of the administration or operation of the plan or the investment of plan assets is pending or, to the Company's Knowledge, Threatened, and to the Company's Knowledge, there is no basis for any such Suit.

(c) Except as disclosed in Schedule 3.19(c) or to the extent required by sec. 4980B of the Internal Revenue Code, the Company does not provide health or other welfare benefits to any retired or former employee and is not obligated to provide health or other welfare benefits to any active employee following his or her retirement or other termination of service.

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(d) The Company does not maintain and has never maintained an Employee Benefit Plan that is or was subject to the "minimum funding standards" under sec. 302 of ERISA or that is or was subject to Title IV of ERISA.

(e) The Company does not contribute to and has never been required to contribute to any "multiemployer plan" (as defined in sec. 3(37) of ERISA), incurred any "withdrawal liability" (as defined in sec. 4021 of ERISA) in respect of any multiemployer plan or withdrawn from any multiemployer plan in a "complete withdrawal" or a "partial withdrawal" (as respectively defined in sec.sec. 4203 and 4205 of ERISA).

(f) Each Employee Benefit Plan and any related trust intended to qualify under Section 401(a) of the Internal Revenue Code so qualifies. Any voluntary employee benefit association which provide benefits to current or former employees of the Company or their beneficiaries is and has been qualified under Section 501(c)(9) of the Internal Revenue Code.

(g) The Company is not a member of a group of trades or businesses under common control or treated as a single employer within the meaning of
Section 414(b), (c) or (m) of the Internal Revenue Code.

(h) Except as disclosed in Schedule 3.19(h), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any employee (current, former or retired) of the Company, (ii) increase any benefits under any Employee Benefit Plan or Contract with any such employee or current or former director of the Company, or (iii) result in the acceleration of time of payment of, vesting of or other rights in respect of any such benefits.

(i) Each of the Employee Benefit Plans covering employees outside of the United States is fully funded through adequate reserves on the Financial Statements, insurance contracts, annuity contracts, trust funds or similar arrangements. The benefits and compensation under the Employee Benefit Plans and Contracts covering employees of the Company outside of the United States are no more than customary and reasonable for the country in which such employees work and the industry in which the Company conducts its business.

3.20 Insurance.

(a) Schedule 3.20(a) consists of four subschedules and lists:

(1) all insurance policies under which the Company or any director or officer of the Company (in his or her capacity as a director or officer) is insured or has been insured at any time since January 1, 1997 (Schedule 3.20(a)(1));

(2) all self-insurance arrangements by the Company (Schedule 3.20(a)(2));

(3) all Contracts and arrangements, other than insurance policies and self-insurance arrangements, for the transfer or sharing of any risk by the Company (Schedule 3.20(a)(3)); and

(4) all obligations of the Company to provide insurance coverage to any Person other than an employee of the Company ((Schedule 3.20(a)(4)).

The Company has delivered to Buyer and Subsidiary (i) copies of all insurance policies listed on Schedule 3.20(a)(1) and all Contracts listed on Schedule 3.20(a)(3) and (ii) a written description of all self-insurance arrangements listed on Schedule 3.20(a)(2).

(b) Schedule 3.20(b) lists the amount and provides a brief description of each claim in excess of $25,000 under each insurance policy listed on Schedule 3.20(a)(1).

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3.21 Compliance. Except as disclosed in Schedule 3.21:

(a) The Company has complied in all material respects, and is in compliance in all material respects, with each Law and Order that is or was applicable to it or to the conduct of the Business.

(b) No event has occurred or circumstance exists that (with or without Notice or the passage of time or both) could (i) constitute or result in a violation by the Company of or its failure to comply with any applicable Law or Order or (ii) give rise to any legal obligation of the Company to undertake or bear all or any portion of the cost of any remedial action of any kind.

(c) The Company has not received any written or oral Notice from any Governmental Authority or other Person regarding (i) any actual, alleged or potential violation by the Company of or its failure to comply with any applicable Law or Order or (ii) any actual, alleged or potential obligation of the Company to undertake or bear all or any portion of the cost of any remedial action of any kind.

3.22 Legal Proceedings.

(a) Schedule 3.22(a) consists of two subschedules and lists:

(1) all pending Suits in which the Company is a party or which otherwise relate to or affect the Company or the Business (Schedule 3.22(a)(1)); and

(2) all other Suits involving monetary claims of more than $25,000 or requests for injunctive relief in which the Company was a party or which otherwise related to or affected (or could have affected) the Company or the Business (Schedule 3.22(a)(2)).

The Company has delivered to Buyer and Subsidiary (i) copies of all pleadings, correspondence and other documents relating to each Suit listed on Schedule 3.22(a)(1) and (ii) a written description in reasonable detail of each Suit listed on Schedule 3.22(a)(2).

(b) Except as disclosed in Schedule 3.22(b):

(1) none of the pending Suits listed on Schedule 3.22(a)(1) could reasonably be expected to have a Material Adverse Effect;

(2) there is no Threatened Suit against the Company or which otherwise relates to or could affect the Company or the Business;

(3) to the Company's Knowledge, no event has occurred or circumstance exists that may give rise to or serve as a basis for any Suit to be brought or Threatened against the Company; and

(4) there is no Threatened Suit that challenges the Merger or could have the effect of preventing, delaying, making illegal or otherwise interfering with the Merger.

3.23 Absence of Certain Events. Except as disclosed in Schedule 3.23, since June 30, 1999, the Company has not:

(a) sold, leased, transferred or disposed of any of its assets used, held for use or useful in conduct of the Business except in the Ordinary Course of Business;

(b) entered into any Contract relating to the Business except in the Ordinary Course of Business;

(c) terminated, accelerated or modified any Contract relating to the Business to which it is or was a party or by which it is or was bound, or has agreed to do so, or has received Notice that another party had done so or intends to do so, except in the case of Contracts which expired in accordance with their terms or which were terminated in the Ordinary Course of Business;

(d) imposed or permitted any Lien on any of its assets relating to or used, held for use or useful in the conduct of the Business;

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(e) delayed or postponed (beyond its normal practice) payment of its vendor accounts payable and other Liabilities;

(f) cancelled, compromised, waived or released any claim or right outside of the Ordinary Course of Business;

(g) experienced any material damage, destruction or loss to any of its assets used, held for use or useful in conduct of the Business (whether or not covered by insurance);

(h) changed the base compensation or other terms of employment of any of its employees;

(i) paid a bonus to any employee;

(j) adopted a new Employee Benefit Plan, terminated any existing plan or increased the benefits under or otherwise modified any existing plan except as contemplated in this Agreement;

(k) amended its Organizational Documents;

(l) issued, sold, redeemed or repurchased any shares of capital stock or other securities or retired any indebtedness; (m) granted any Options;

(n) declared or paid any dividends or made any other distributions in respect of its capital stock;

(o) made, or guaranteed, any loans or advances to another Person or made any investment or commitment therefor in any Person;

(p) made any capital expenditures in excess of $100,000 in the aggregate;

(q) made any change in its accounting principles or methods;

(r) entered into any Contract to do any of the matters described in the preceding clauses (a)-(q); or

(s) entered into or engaged in any other transaction or activity outside of the Ordinary Course of Business, or suffered the occurrence or any other event involving the Business occurring outside of the Ordinary Course of Business.

3.24 Environmental Matters. Except as disclosed in Schedule 3.24:

(a) The Company is, and has been at all times, in compliance in all material respects with all applicable Environmental Laws and Occupational Safety and Health Laws, and the Company is not aware of any facts, circumstances or conditions which would prevent material compliance in the future.

(b) Neither the Company nor any other Person for whose conduct the Company may be held responsible has received, and to the Company's Knowledge, there is no basis to expect the Company or any other Person for whose conduct the Company may be held responsible to receive, any Notice from any Governmental Authority, any private citizen acting in the public interest, the current or prior owner or operator of any current or former Facility, or any other Person, of (i) any actual or potential violation or failure to comply with any of the Environmental Laws or (ii) any actual or potential Cleanup Liability or other Environmental Liability.

(c) To the Company's Knowledge, neither the Company nor any other Person for whose conduct the Company may be held responsible has any Cleanup Liability or other Environmental Liability in respect of any current or former Facility, any property adjoining any current or former Facility, or any assets used or useful in the conduct of the Business, and no such current or, to the Company's Knowledge, former Facility contains or contained (i) any underground storage tanks, (ii) any landfills, dumps or surface impoundments, (iii) any asbestos-containing materials, or (iv) any polychlorinated biphenyls.

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(d) Except for Hazardous Materials stored or used in the Ordinary Course of Business and in compliance in all material respects with all applicable Environmental Laws, there are no Hazardous Materials at any current Facility (whether or not in storage tanks or other containers). To the Company's Knowledge, except for Hazardous Activities conducted in the Ordinary Course of Business and in compliance in all material respects with all applicable Environmental Laws, neither the Company nor any other Person for whose conduct the Company may be held responsible has permitted or conducted any Hazardous Activity at any current or former Facility.

(e) To the Company's Knowledge, there has been no Release or threatened Release by the Company or any other Person of any Hazardous Materials at or from any current or former Facility or any property adjoining any current or former Facility.

None of the exceptions on Schedule 3.24 are reasonably likely to result in the Company incurring costs and liabilities which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has delivered copies to Buyer and Subsidiary of all reports, studies, analyses, tests or monitoring possessed or initiated by the Company relating to Hazardous Materials or Hazardous Activities at any current, or former, Facility or compliance by the Company, or any other Person for whose conduct the Company may be held responsible, with applicable Environmental Laws.

3.25 Employees. Schedule 3.25 of the Disclosure Schedule contains a complete and accurate list of the following information for the employees of the Company, including employees on leave of absence: name; job title; date of hire; current base compensation; changes in base compensation since January 1, 1998; bonus targets; accrual rate on vacation; visa type (if any) as reflected on the Form I-9 in the Company's files; and accrued flex time-off hours. The Company has complied with all applicable documentation requirements of the United States Immigration and Naturalization Service with respect to its employees. To the Company's Knowledge, no employee of the Company is a party to or is otherwise bound by any Contract or arrangement, including any confidentiality, noncompetition or proprietary rights agreement, that would limit or restrict the scope of his or her duties as an employee of the Surviving Corporation following Closing. All employees of the Company have the legal right to work in the country in which they are employed.

3.26 Labor Relations. The Company is not and has never been a party to any collective bargaining agreement or other labor Contract. The Company is not experiencing, and has not experienced at any time, and, to the Company's Knowledge, there is no basis to expect the Company to experience: (i) any strike, slowdown, picketing or work stoppage by or lockout of its employees;
(ii) any Suit relating to the alleged violation of any Law or Order relating to labor relations or employment matters (including any charge or complaint filed by an employee or union with the U.S. National Labor Relations Board or Equal Employment Opportunity Commission or any other comparable Governmental Authority); (iii) any other labor or employment dispute; or (iv) any activity to organize or establish a collective bargaining unit, trade union or employee association.

3.27 Certain Payments. Neither the Company nor any officer, director, employee or agent of the Company, or any other Person associated with or acting for or on behalf of the Company, has directly or indirectly made or paid any contribution, gift, bribe, rebate, payoff, kickback or other payment (whether in money, property or services or any other form) to any Person (i) in order to gain or pay for favorable treatment in obtaining business or special concessions or (ii) in violation of any Law. Without limiting the generality of the foregoing, neither the Company nor any of the other Persons specified above has taken any action in violation of the Foreign Corrupt Practices Act.

3.28 Related Persons. Except as disclosed in Schedule 3.28, no Related Party has or had a direct or indirect financial or other interest in (i) any assets of the Company, (ii) any transaction with the Company or (iii) to the Company's Knowledge, any Person who has or had business dealings with the Company (other than as a stockholder owning less than 1% of the outstanding stock of any such Person whose stock is traded on a national securities exchange).

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3.29 Broker's Fee. Except for any amounts due to SG Cowen Securities Corporation, the Company has no Liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement. A true and complete copy of the engagement agreement between the Company and SG Cowen Securities Corporation has been provided to Buyer.

3.30 Year 2000 Compliance.

(a) Based on a comprehensive assessment of the Systems that are used or relied on by the Company in the conduct of its business, the Company does not know of any such System that will malfunction, will cease to function, will generate incorrect data or will provide incorrect results when processing, providing and/or receiving (i) date-related data in, into or between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth or twenty-first centuries.

(b) No product or service that is or has been sold, licensed, rendered or otherwise provided or offered by the Company in the conduct of its business will cease to function, will generate incorrect data or will produce incorrect results when processing, providing or receiving (i) date-related data in, into or between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth or twenty-first centuries; and, to the knowledge of the Company, the Company is not and will not be subject to claims or liabilities arising from any such malfunction, cessation of function, generation of incorrect data or production of incorrect results.

(c) Based on a comprehensive inquiry of all suppliers and service providers of the Company, the Company does not know of any inability on the part of any such supplier or service provider to timely ensure that its own (and its material suppliers' and service providers') Systems continue to operate without malfunction, to operate without ceasing to function, to generate correct data and to produce correct results when processing, providing and/or receiving (i) date-related data in, into and between the twentieth and twenty-first centuries and (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries.

(d) Schedule 3.30(d) contains an accurate statement of the Company's Year 2000 Compliance Program, and (without limiting the generality of the foregoing) the Company has completed all program steps and taken all measures described in the Process Compliance Timetable and Frequently Asked Questions thereof.

(e) For the purposes of this Agreement, "Systems" means, with respect to a Person, any and all material hardware, software and firmware used by the Company in the course of its business, including (i) any and all source and object code; (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise; (iii) billing, reporting and other management information systems; (iv) all descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing; (v) all content contained on any Internet site(s) maintained by such Person or any of its subsidiaries; and
(vi) all documentation, including user manuals and training materials, relating to any of the foregoing.

3.31 Product Recalls.

(a) (i) Except as set forth on Schedule 3.31(a)(i), the Company has not received any written notice, demand, claim, or inquiry and there is no action, suit, hearing, proceeding or investigation, of a civil, criminal or administrative nature (collectively, "Notices") pending, or to the Company's knowledge, threatened before any Governmental Authority in which a Product is alleged to have a Defect or relating to or resulting from any alleged failure to warn or from any alleged breach of express or implied warranties or representations, nor, to the Company's knowledge, is there any valid basis for any such demand, claim, action, suit, inquiry, hearing, proceeding, notice of violation or investigation; (ii) no Notice would, if adversely determined, have, individually or in the aggregate, a Material Adverse Effect on the Company; (iii) except as set forth on Schedule 3.31(a)(iii), there has not been any recall, rework, retrofit or post-sale general consumer warning since December 31, 1996 (collectively, "Recalls") of any Product, or, to the knowledge of the Company, any investigation or

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consideration of or decision made by any Person concerning whether to undertake or not to undertake any Recalls and the Company has received no Notices from any Governmental Entity or any other Person in respect of the foregoing; and (iv) to the knowledge of the Company, there are currently no material defects in design, manufacturing, materials or workmanship, including, any failure to warn, or any breach of express or implied warranties or representations, which involve any Product that accounts for a material portion of the Company's sales.

(b) As used herein, (i) "Defect" means a defect or impurity of any kind, whether in design, manufacture, processing, or otherwise, including, any dangerous propensity associated with any reasonably foreseeable use of a Product, or the failure to warn of the existence of any defect, impurity or dangerous propensity; and (ii) "Product" means any product designed, manufactured, shipped, sold, marketed, distributed and/or otherwise introduced into the stream of commerce by or on behalf of the Company.

3.32 Takeover Statutes. The Company has taken all action required to be taken by it in order to exempt this Agreement and the transactions contemplated hereby, including the Voting Agreement, and this Agreement and the transactions contemplated hereby are exempt, from the requirements of any "moratorium," "control share," "fair price," "affiliate transaction," "business combination" or other anti-takeover Laws of Illinois (collectively, "Takeover Statutes").
Section 5/11.75 of the Illinois Business Corporation Act is not applicable, by virtue of paragraph (b)(4) thereof, to the Company or the transactions contemplated hereby.

3.33 Information Supplied. None of the information supplied or to be supplied by the Company for inclusion in (i) the registration statement on Form S-4 to be filed with the SEC by Buyer in connection with the issuance of Buyer Common Stock as required by the terms of this Agreement pursuant to the Merger (the "S-4"), at the time the S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the proxy statement relating to the Company Shareholder Meeting to be held in connection with the Merger (the "Proxy Statement") will, at the date mailed to shareholders and at the time of the Company Shareholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event in respect of the Company, its officers and directors or any of its subsidiaries should occur which is required to be described in an amendment of, or a supplement to, the S-4, the Company shall promptly so advise Buyer and such event shall be so described, and the Company shall cooperate in the prompt filing of such amendment or supplement with the SEC and, as required by Law, shall promptly disseminate such amendment or supplement to the shareholders of the Company.

3.34 Accounting Matters. Neither the Company nor, to the Company's knowledge, any of its Affiliates or Shareholders, has taken or agreed to take any action or is aware of any fact or circumstance that would be reasonably likely to prevent the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations.

3.35 Subsidies. Except as disclosed on Schedule 3.35, no grants, subsidies or similar arrangements exist directly or indirectly between the Company, on the one hand, and any domestic or foreign Governmental Authority or any other Person, on the other hand.

3.36 Disclosure.

(a) As qualified or limited by the exceptions in the Disclosure Schedule, and solely as so qualified or limited, no statement in this Article 3 is untrue or omits to state any material fact necessary to make the statement, in light of the circumstances in which made, not misleading. When read in conjunction with this Article 3, no statement in the Disclosure Schedule is untrue or omits to state any material fact necessary to make any statement in this Article 3 or in the Disclosure Schedule itself, in light of the circumstances in which made, not misleading.

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(b) No Notice given pursuant to Section 5.8 will contain an untrue statement or omit to state a material fact necessary to make any statement in the Notice, in light of the circumstances in which made, not misleading.

(c) All copies of documents delivered by the Company to Buyer and Subsidiary under this Agreement have been or will be true and complete copies of the originals.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER AND SUBSIDIARY

In order to induce the Company to enter into this Agreement, Buyer and Subsidiary represent and warrant to the Company as follows:

4.1 Organization. Each of Buyer and Subsidiary is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and Illinois, respectively, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform its obligations under all Contracts. Buyer directly owns all of the issued and outstanding shares of capital stock of the Subsidiary.

4.2 Authority. Each of Buyer and Subsidiary has the power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by each of Buyer and Subsidiary have been duly authorized by all necessary action required by its Organizational Documents and applicable Law.

4.3 Enforceability. This Agreement constitutes the legal, valid and binding obligation of each of Buyer and Subsidiary, enforceable against them in accordance with its terms except as enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

4.4 No Violation. The execution, delivery and performance of this Agreement by each of Buyer and Subsidiary will not, either directly or indirectly (and with or without Notice or the passage of time or both): (i) violate or conflict with its Organizational Documents; (ii) result in a breach of or default under any Contract to which it is a party or by which it is bound; or (iii) violate or conflict with any Law or Order to which it is subject.

4.5 No Consent Required. Except as required by HSR, the execution, delivery and performance of this Agreement by each of Buyer and Subsidiary do not require any Notice to, filing with, Permit from or other Consent of any Governmental Authority or other Person.

4.6 Broker's Fee. Neither Buyer nor Subsidiary has any Liability or obligation to pay any fees or commissions to any broker, finder or agent acting with respect to the transactions contemplated by this Agreement.

4.7 SEC Reports; Financial Statements. Buyer has filed all required forms, reports and documents with the SEC since December 31, 1997, each of which has complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder, each as in effect on the dates such forms, reports, and documents were filed. Buyer has heretofore made available to the Company, in the form filed with the SEC (including, any amendments thereto), (i) its Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998, (ii) all definitive proxy statements relating to Buyer's meetings of stockholders (whether annual or special) held since December 31, 1997 and (iii) all other reports or registration statements filed by Buyer with the SEC since December 31, 1997 (the "Buyer SEC Reports"). None of such Buyer SEC Reports, including, any financial statements or schedules included or incorporated by reference therein, contained, when filed, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the

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circumstances under which they were made, not misleading. The consolidated financial statements of Buyer included in the Buyer SEC Reports complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC in respect thereof and fairly present, in conformity with GAAP (except as may be indicated in the notes thereto), the consolidated financial position of Buyer and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments). Except as and to the extent disclosed in the Buyer SEC Reports, since December 31, 1998, there has not been any event, occurrence or development which does or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Buyer.

4.8 Information Supplied. None of the information supplied or to be supplied by Buyer or Subsidiary for inclusion or incorporation by reference in
(i) the S-4 will, at the time the S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) the Proxy Statement will, at the date mailed to shareholders of the Company and at the time of the Company Shareholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event in respect of Buyer, its officers and directors, or any of its subsidiaries should occur which is required to be described in an amendment of, or a supplement to, the S-4 or the Proxy Statement, Buyer shall promptly so advise the Company and such event shall be so described, and any such amendment or supplement to the S-4 (which the Company shall have a reasonable opportunity to review) shall be promptly filed with the SEC. The S-4 will comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations thereunder.

4.9 Accounting Matters. Neither Buyer nor, to Buyer's Knowledge, any of its Affiliates, has taken or agreed to take any action or is aware of any fact or circumstance that would be reasonably likely to prevent the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations.

ARTICLE 5

EVENTS PRIOR TO CLOSING

5.1 Conduct of Business. Pending Closing:

(a) the Company shall conduct the Business only in the Ordinary Course of Business and with no less diligence and effort than would be applied in the absence of this Agreement, use its best efforts to maintain the Business intact and to preserve its goodwill and advantageous relationships with customers, distributors, employees, suppliers and other Persons having business dealings with the Business;

(b) the Company shall not take any affirmative action that results in the occurrence of an event described in Section 3.23 or fail to take any reasonable action within its control that would avoid the occurrence of an event described in Section 3.23; and

(c) the Company will not take any action that would prevent or impede the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations.

5.2 Preparation of the S-4 and the Proxy Statement. Buyer and the Company will, as promptly as practicable, jointly prepare the Proxy Statement in connection with the vote of the shareholders of the Company in respect of the Merger. Buyer will, as promptly as practicable, prepare and file with the SEC the S-4 in connection with the registration under the Securities Act of the shares of Buyer Common Stock issuable pursuant with the Merger. Buyer and the Company will, and will cause their accountants and lawyers to, use all reasonable best efforts to have or cause the S-4 declared effective as promptly as

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practicable after filing with the SEC, including causing their accountants to deliver necessary or required instruments such as opinions, consents and certificates, and will take any other action required or necessary to be taken under federal or state securities Laws or otherwise in connection with the registration process (other than qualifying to do business in any jurisdiction which it is not now so qualified or to file a general consent to service of process in any jurisdiction). Buyer shall, as promptly as practicable after the receipt thereof, provide to the Company copies of any written comments and advise the Company of any oral comments, in respect of the S-4 received from the staff of the SEC. The Company will provide Buyer with a reasonable opportunity to review and comment on any amendment or supplement to the Proxy Statement. The Company will use its reasonable best efforts to cause the Proxy Statement to be mailed to its shareholders at the earliest practicable date following effectiveness of the S-4.

5.3 Letters of Accountants.

(a) The Company shall use reasonable best efforts to cause to be delivered to Buyer a letter of Arthur Andersen LLP, the Company's independent auditors, dated a date within two business days before the date on which the S-4 shall become effective and addressed to Buyer, in form and substance reasonably satisfactory to Buyer and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the S-4.

(b) Buyer shall use reasonable best efforts to cause to be delivered to the Company a letter of Ernst & Young LLP, Buyer's independent auditors, dated a date within two business days before the date on which the S-4 shall become effective and addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the S-4.

5.4 Shareholder Meeting. The Company shall take all lawful action to (i) cause a special meeting of its shareholders (the "Company Shareholder Meeting") to be duly called and held as soon as practicable after the date of this Agreement for the purpose of voting on the approval and adoption of this Agreement and (ii) solicit proxies from its shareholders to obtain the Shareholder Approval. The Company board of directors shall recommend approval and adoption of this Agreement and the Merger by the Company's shareholders and, except as permitted by Section 5.9(b), shall not withdraw, amend, or modify in a manner adverse to Buyer such recommendation (or announce publicly its intention to do so). Notwithstanding the foregoing, regardless of whether the Company board of directors has withdrawn, amended or modified its recommendation that its shareholders approve and adopt this Agreement, unless this Agreement has been terminated pursuant to the provisions of Article 8, the Company shall be required to hold the Company Shareholder Meeting.

5.5 Access to Information. Pending Closing, the Company shall (i) give Buyer and Subsidiary and their representatives (including counsel, financial advisors and accountants) access during normal business hours (but without unreasonable interference with operations) to the Facilities of the Company and to the Company's Books and Records and other documents and (ii) make the officers and employees of the Company available for questioning. The Company shall furnish Buyer and Subsidiary and their representatives with all information and copies of all documents concerning the Company, the Business and the Shares, Options and Warrant that Buyer and Subsidiary and their representatives reasonably request. Neither Buyer nor Subsidiary shall contact any of the Company's customers without the Company's prior permission, provided that the Company agrees to cooperate, if Buyer so requests, in arranging and participating in joint meetings with Company customers. The Company shall furnish to Buyer and Subsidiary at the earliest time they are available (i) such monthly financial statements and data routinely prepared by the Company (ii) at the earliest time they are available, such quarterly and annual financial statements routinely prepared by the Company.

5.6 Reasonable Best Efforts. (a) Subject to the terms and conditions of this Agreement, each party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the Merger and the other transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, each party hereto shall make an appropriate filing of any notification and report forms under HSR in respect of

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the transactions contemplated hereby as promptly as practicable and in any event within ten business days of the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant under HSR and use its reasonable best efforts to take, or cause to be taken, all other actions consistent with this Section 5.6 necessary to cause the expiration or termination of the applicable waiting periods under HSR as soon as practicable.

(b) Each of Buyer and the Company shall, in connection with the efforts referenced in Section 5.6(a) to obtain all requisite approvals and authorizations for the transactions contemplated by this Agreement under HSR, or any other antitrust Law, use its reasonable best efforts to (i) cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party; (ii) keep the other party informed in all material respects of any material communication received by such party from, or given by such party to, the Federal Trade Commission ("FTC"), the Antitrust Division of the U.S. Department of Justice ("DOJ") or any other Governmental Authority and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated hereby; and (iii) permit the other party to review any material communication given by it to, and consult with each other in advance of any meeting or conference with FTC or DOJ or any such other Governmental Authority or, in connection with any proceeding by a private party, with any other Person, and to the extent permitted by the FTC, the DOJ or such other applicable Governmental Authority or other Person, give the other party the opportunity to attend and participate in such meetings and conferences.

(c) In furtherance and not in limitation of the covenants of the parties contained in Sections 5.6(a) and (b), each of Buyer and the Company shall use its reasonable best efforts to resolve such objections, if any, as may be asserted by a Governmental Authority or other Person in respect of the transactions contemplated hereby under any Law. In connection with the foregoing, if any administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any antitrust Law, each of Buyer and the Company shall cooperate in all respects with each other and use its respective reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction, or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, nothing in this Section 5.6 shall (i) limit a party's right to terminate this Agreement pursuant to Article 8 so long as such party has up to then complied in all material respects with its obligations under this Section 5.6, or (ii) require Buyer to dispose or hold separate any part of its or the Company's business or operations (or a combination of Buyer's and the Company's business or operations), or comply with any other material restriction affecting its business or operations.

(d) The Company agrees that in connection with any litigation which may be brought against the Company or its directors relating to the transactions contemplated hereby, the Company will keep Buyer, and any counsel which Buyer may retain at its own expense, informed of the course of such litigation, to the extent Buyer is not otherwise a party thereto. The Company agrees that it will consult with Buyer prior to entering into any settlement or compromise of any such litigation, and that no such settlement or compromise will be entered into without Buyer's prior written consent, which consent shall not be unreasonably withheld.

5.7 Other Filings. As promptly as practicable after the date of this Agreement, the Company shall give each Notice, make each filing and obtain each Permit or other Consent listed on Schedule 3.6, if any. To the extent that the cooperation of Buyer and Subsidiary is necessary or, in the Company's reasonable judgment, desirable, Buyer and Subsidiary shall cooperate with the Company in regard to all Notices, filings, Permits and other Consents listed on Schedule 3.6.

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5.8 Notice of Developments. Pending Closing, the Company shall promptly give Notice to Buyer and Subsidiary of: (i) any fact or circumstance of which the Company becomes aware that causes or constitutes an inaccuracy in or breach of any of the Company's representations and warranties in Article 3 on the date of this Agreement; (ii) any fact or circumstance of which the Company becomes aware that would cause or constitute an inaccuracy in or breach of any of the Company's representations and warranties in Article 5 if its representations and warranties were made on and as of the date of occurrence or discovery of the fact or circumstance; (iii) any breach of or default under Section 5.1 or any of the Company's other obligations in this Article 5; or (iv) the occurrence of any event that may make satisfaction of any of the conditions in Section 6.1 or 6.2 impossible or unlikely; provided, however, that the delivery of any notice pursuant to this Section 5.8 shall not cure such breach or non-compliance or limit or otherwise affect the rights, obligations or remedies available hereunder to Buyer and Subsidiary.

5.9 Acquisition Proposals.

(a) The Company will not, nor will it authorize or permit any officer, director or employee of or any investment banker, attorney, accountant or other advisor or representative of, the Company to, directly or indirectly,
(i) solicit, initiate or encourage the submission of any Acquisition Proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any Person any information in respect of, or take any other action to facilitate, any Acquisition Proposal or any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal. The Company shall notify Buyer of any Acquisition Proposal (including the material terms and conditions thereof and the identity of the Person making it) as promptly as practicable after its receipt thereof, and shall provide Buyer with a copy of any written Acquisition Proposal or amendments or supplements thereto, and shall thereafter inform Buyer on a prompt basis of the status of any discussions or negotiations with such a third party, and any material changes to the terms and conditions of such Acquisition Proposal, and shall promptly give Buyer a copy of any information delivered to such Person which has not previously been reviewed by Buyer. Immediately after the execution and delivery of this Agreement, the Company will, and will use its reasonable best efforts to cause its affiliates and their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents and representatives to, cease and terminate any existing activities, discussions or negotiations with any parties conducted heretofore in respect of any possible Acquisition Proposal. The Company shall take all necessary steps to promptly inform the individuals or entities referred to in the first sentence of this Section 5.9 of the obligations undertaken in this Section 5.9. "Acquisition Proposal" means an inquiry, offer or proposal regarding any of the following (other than the transactions contemplated by this Agreement) involving the Company: (w) any merger, consolidation, share exchange, recapitalization, business combination or other similar transaction; (x) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or substantially all the assets of the Company in a single transaction or series of related transactions; (y) any tender offer or exchange offer for 20% or more of the outstanding Shares or the filing of a registration statement under the Securities Act in connection therewith; or (z) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

(b) The Company board of directors will not withdraw or modify, or propose to withdraw or modify, in a manner adverse to Buyer, its approval or recommendation of this Agreement or the Merger unless the Company board of directors, after consultation with independent legal counsel, determines in good faith that such action is necessary to avoid a breach by the Company board of directors of its fiduciary duties to the Company's shareholders under applicable Law. Nothing contained in this Section 5.9(b) shall prohibit the Company from making any disclosure to the Company's shareholders which, in the good faith reasonable judgment of the Company board of directors, after consultation with independent legal counsel, is required under applicable Law; provided, that except as otherwise permitted in this Section 5.9(b), the Company may not withdraw or modify, or propose to withdraw or modify, its position with respect to the Merger or approve or recommend, or propose to approve or recommend, an Acquisition Proposal. Notwithstanding anything contained in this Agreement to the contrary, any action by the Company board of directors permitted

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by, and taken in accordance with, this Section 5.9(b) shall not constitute a breach of this Agreement by the Company. Nothing in this Section 5.9(b) shall (i) permit the Company to terminate this Agreement (except as provided in Article 8) or (ii) affect any other obligations of the Company under this Agreement.

5.10 Public Announcements. Each of Buyer, Subsidiary and the Company will consult with one another before issuing any press release or otherwise making any public statements in respect of the transactions contemplated by this Agreement, including the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law or by obligations pursuant to any listing agreement with the NYSE, as determined by Buyer, Subsidiary, or the Company, as the case may be.

5.11 Tax-Free Reorganization Treatment. The parties hereto intend that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Each of the parties hereto shall use its reasonable best efforts to cause the Merger to so qualify. The Company and Buyer will provide or cause to be provided to Weil, Gotshal & Manges LLP and Johnson and Colmar all representation letters described in Section 6.2(f) and 6.3(c).

5.12 Employee Matters.

(a) Buyer will cause the Surviving Corporation to honor the obligations of the Company or any of its subsidiaries under the provisions of all Employee Benefit Plans and employee arrangements, subject to Buyer's right to amend or terminate any such benefit plan or employee arrangement in accordance with its terms. After the Effective Time, the employees of the Company will be eligible to participate in the Company's Employee Benefit Plans or, if so determined by Buyer, Buyer's applicable Employee Benefit Plans, as such plans may be in effect from time to time, and at Buyer's sole discretion, will become employees of Buyer. At the Buyer's sole discretion and with respect to each such employee of the Company, service with the Company or any of its subsidiaries may be counted for purposes of determining periods of eligibility to participate or to vest in benefits under any applicable Employee Benefit Plan of Buyer. At the Buyer's sole discretion, administrative functions, including but not limited to payroll processing, may be transferred to processors of the Buyer's choosing.

(b) The Company shall, not less than five days prior to the scheduled Closing Date, terminate its 401(k) retirement plan, effective immediately prior to the Effective Time.

5.13 Affiliate Letters. Section 5.13 of the Disclosure Schedule sets forth a list of all Persons who are, and all Persons who to the Company's knowledge will be at the Closing Date, "affiliates" of the Company for purposes of Rule 145 under the Securities Act. The Company will cause such list to be updated promptly through the Closing Date. Not later than 45 days prior to the date of the Company Shareholder Meeting, the Company shall cause its "affiliates" to deliver to Buyer a Company Affiliate Agreement substantially in the form attached as EXHIBIT D.

5.14 Fees and Expenses. If the Merger is consummated, the Surviving Corporation shall pay the amounts due from the Company to SG Cowen Securities Corporation and shall also pay the legal and accounting fees and expenses of the Company in connection with the Merger (the total of which amounts shall not exceed $4,700,000). If the Merger is not consummated, all Expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such Expenses; provided, however, whether or not the Merger is consummated, (a) expenses incurred in connection with the filing, printing and mailing of the Proxy Statement and the S-4 shall be shared equally by the Company and Buyer, (b) the filing fees required under the HSR shall be shared equally by the Company and Buyer and (c) if applicable, as provided in
Section 8.5. As used in this Agreement, "Expenses" includes all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by a party or on its behalf in connection with, or related to, the authorization, preparation, negotiation, execution and performance of this Agreement and the transactions contemplated hereby, including the preparation, filing,

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printing and mailing of the Proxy Statement and the S-4 and the solicitation of shareholder approvals and all other matters related to the transactions contemplated hereby.

5.15 Listing of Stock. Buyer shall use its reasonable best efforts to cause the shares of Buyer Common Stock to be issued in connection with the Merger to be approved for listing on the NYSE on or prior to the Closing Date, subject to official notice of issuance.

5.16 Comdisco Release. As soon as practicable following the date of this Agreement, and in any event prior to the Closing Date, the Company shall (i) secure from Comdisco Ventures releases of all liens encumbering the intellectual property or other assets of the Company and reassignments to the Company of any rights in the intellectual property or other assets of the Company previously assigned by the Company to Comdisco Ventures and (ii) will file appropriate documents evidencing such releases and reassignments with the appropriate Governmental Authorities. Such releases and reassignments shall include a statement by Comdisco Ventures that it has not conferred any rights (including ownership or by license) in the intellectual property or other assets of the Company to any third party.

ARTICLE 6

CONDITIONS TO CLOSING

6.1 Conditions of Each Party. The respective obligations of each party to consummate the Merger and to take the other actions that they are respectively required to take at Closing are subject to the satisfaction or written waiver by each of the parties of each of the following conditions prior to or at Closing:

(a) this Agreement and the Merger shall have received Shareholder Approval;

(b) all applicable waiting periods under HSR shall have expired or otherwise been terminated;

(c) since the date of this Agreement, no Suit shall have been initiated or Threatened that challenges or seeks damages or other relief in connection with the Merger or that could have the effect of preventing, delaying, making illegal or otherwise interfering with the Merger;

(d) the S-4 shall have been declared effective by the SEC and shall be effective at the Effective Time, and no stop order suspending effectiveness shall have been issued; no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been initiated and be continuing; and all necessary approvals under state securities Laws or the Securities Act or Exchange Act relating to the issuance or trading of the Buyer Common Stock shall have been received; and

(e) the Buyer Common Stock required to be issued hereunder shall have been approved for listing on the NYSE, subject only to official notice of issuance.

6.2 Conditions of Buyer and Subsidiary. The respective obligations of Buyer and Subsidiary to consummate the Merger and to take the other actions that they are respectively required to take at Closing are subject to the satisfaction of each of the following conditions prior to or at Closing:

(a) the Company's representations and warranties in Article 3 shall be true in all material respects on the Closing Date as if they were made at and as of the Closing;

(b) the Company shall have executed and delivered all of the documents and instruments that it is required to execute and deliver or enter into prior to or at Closing, and shall have performed, complied with, or satisfied in all material respects all of its other obligations, agreements and conditions under this Agreement that it is required to perform, comply with or satisfy prior to or at Closing;

(c) each Permit or other Consent listed on Schedule 3.6, if any, shall have been obtained and is in full force;

(d) the Company Legal Opinion has been rendered and delivered to Buyer;

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(e) holders of Shares representing no more than five percent of the outstanding Common Stock, assuming for such purpose conversion of all outstanding Preferred Stock, shall have exercised and not withdrawn, forfeited or otherwise permitted to lapse appraisal, dissenter's or similar rights under applicable Law with respect to their Shares in connection with the Merger;

(f) Buyer and Subsidiary shall have received the opinion of Weil, Gotshal & Manges LLP, dated the Effective Time, to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The issuance of such opinion shall be conditioned on the receipt by such tax counsel of representation letters from each of Buyer, Subsidiary and the Company, in each case, in form and substance reasonably satisfactory to such counsel. Each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect;

(g) the Company shall have received and delivered to Buyer a letter from Arthur Andersen LLP dated as of the Closing Date, stating that the accounting of the Merger as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations is appropriate if the Merger is consummated as contemplated by this Agreement. Buyer shall have received a letter from Ernst & Young LLP, dated as of the Closing Date, stating that accounting of the Merger as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations is appropriate if the Merger is consummated as contemplated by this Agreement; and

(h) the Warrant shall have been exercised, and the Company shall have issued 30,833 shares of Common Stock to the holder thereof.

Buyer and Subsidiary may waive any condition specified in this Section 6.2 by a written waiver delivered to the Company at any time prior to or at Closing.

6.3 Conditions of the Company. The obligation of the Company to consummate the Merger and to take the other actions that it is required to take at Closing is subject to the satisfaction of each of the following conditions prior to or at Closing:

(a) the representations and warranties of Buyer and Subsidiary in Article 4 shall be true and correct in any material respects on the Closing Date as if they were made at and as of the Closing;

(b) the Buyer Legal Opinion shall have been rendered and delivered to the Company;

(c) the Company shall have received the opinion of Johnson and Colmar, dated the Effective Time, to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The issuance of such opinion shall be conditioned on the receipt by such tax counsel of representation letters from each of Buyer, Subsidiary and the Company, in each case, in form and substance reasonably satisfactory to such counsel. Each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect; and

(d) Buyer and Subsidiary shall have executed and delivered all of the documents and instruments that they are required to execute and deliver or enter into prior to or at Closing, and shall have performed, complied with or satisfied in all material respects all of their other obligations, agreements and conditions under this Agreement that they are required to perform, comply with or satisfy prior to or at Closing.

The Company may waive any condition specified in this Section 6.3 by a written waiver delivered to Buyer and Subsidiary at any time prior to or at Closing.

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ARTICLE 7

SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; ESCROW PROVISIONS

7.1 Survival of Representations, Warranties, Covenants and Agreements. Notwithstanding any right of Buyer, Subsidiary or the Company (whether or not exercised) to investigate the affairs of Buyer, Subsidiary or the Company, each party shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other party contained in this Agreement or in any instrument required to be delivered hereunder; provided, however, that, except in the case of fraud (i.e., an intentional breach of a representation, warranty, covenant or agreement, but excluding any negligent or reckless breach), no reliance can be made on, or claim made in respect of, any representation, warranty, covenant or agreement specific compliance with which was waived in writing, including the waiver of any related closing condition contained in Article 6. The covenants and agreements of the Company, Buyer and Subsidiary contained in this Agreement or in any instrument delivered pursuant to this Agreement that by their terms apply or are to be performed in whole or in part after the Effective Time shall survive the Effective Time. The representations and warranties of the Company, Buyer and Subsidiary contained in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Merger and continue until the filing of Buyer's Annual Report on Form 10-K for the fiscal year ending December 31, 1999, except for the representations and warranties set forth in Sections 3.12, 3.15, 3.17, 3.19, 3.22, 3.24, 3.30, which shall continue until the first anniversary of the Closing Date (the "Expiration Date"). Each of the parties hereto agrees that, except for the representations and warranties contained in this Agreement, none of Buyer, Subsidiary or the Company has made any representations or warranties, and except for the representations and warranties contained in this Agreement, each of Buyer, Subsidiary and the Company acknowledges that no representations or warranties have been made by, and it has not relied upon any representations or warranties made by, any of the parties hereto or any of their respective officers, directors, employees, agents, financial and legal advisors or other representatives (collectively, "Representatives") with respect to this Agreement and the transactions contemplated hereby, and the documents and instruments referred to herein, notwithstanding the delivery or disclosure to such party or its Representatives of any documentation or other information with respect to any one or more of the foregoing. The inclusion of any entry on the Disclosure Schedule shall not constitute an admission by, or agreement of, the Company that such matter is material to the Company.

7.2 Escrow Provisions.

(a) Establishment of the Escrow Fund. "Escrow Amount" and "Escrow Fund" means the number of shares of Buyer Common Stock obtained by multiplying (i) the aggregate number of shares of Buyer Common Stock issuable by Buyer at the Effective Time to holders of Shares in accordance with Sections 2.4(c) by (ii) 5%. At the Effective Time, the Escrow Amount, without any act of any shareholder, will be deposited with Harris Trust and Savings Bank (the "Depositary Agent") (plus thereafter a proportionate share of any additional shares of Buyer Common Stock as may be issued upon any stock splits, stock dividends or recapitalizations effected by Buyer following the Effective Time). The Escrow Fund will be governed by the terms set forth herein and shall be maintained at Buyer's sole cost and expense. The portion of the Escrow Amount contributed on behalf of each Shareholder shall be in proportion to the aggregate number of shares of Buyer Common Stock to which such holder would otherwise be entitled under
Section 2.4(c). For Tax purposes, the Escrow Fund shall be treated as owned by the Shareholders.

(b) Recourse to the Escrow Fund. The Escrow Fund shall be available (and shall be the sole and exclusive remedy after the Effective Time) to compensate Buyer and the Surviving Corporation, and their respective officers, directors, employees, agents and affiliates, for any and all Losses (whether or not involving a Third Party Claim), incurred or sustained by Buyer or the Surviving Corporation, their respective officers, directors, employees, agents or affiliates, directly or indirectly, as a result of any inaccuracy or breach of any representation, warranty, covenant or agreement of the Company contained herein which survived the Effective Time in accordance with this Agreement;

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provided, however, that Buyer and the Surviving Corporation may not make any claims against the Escrow Fund unless the aggregate Losses incurred or sustained exceed $250,000 (at which such time claims may be made for all such Losses incurred or sustained in excess of such amount). The Shareholders shall not have any liability under this Agreement of any sort whatsoever in excess of the Escrow Fund. For purposes of this Agreement, "Losses" shall mean all losses, expenses (including reasonable attorneys' fees and expenses), damages, liabilities, fines, penalties, judgments, actions, claims and costs including any Tax imposed on any payment received from the Escrow Fund as well as Taxes resulting from the circumstances giving rise to the Loss.

(c) Escrow Period; Distribution of Escrow Fund upon Termination of Escrow Period. Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Effective Time and shall terminate at 5:00 p.m., Dallas Time, on the Expiration Date (the period of time from the Effective Time through and including the Expiration Date is referred to herein as the "Escrow Period"); and all shares of Buyer Common Stock remaining in the Escrow Fund shall be distributed as set forth in the last sentence of this Section 7.2(c); provided, however, that the Escrow Period shall not terminate with respect to such amount (or some portion thereof) that is necessary in the reasonable judgment of Buyer, subject to the objection of the Shareholder Representatives and the subsequent resolution of the matter in the manner as provided in Section 7.2(g) hereof, to satisfy any unsatisfied written claims under this Section 7.2 concerning facts and circumstances existing prior to the termination of such Escrow Period which claims are specified in any Officer's Certificate delivered to the Depositary Agent prior to termination of such Escrow Period. As soon as all such claims, if any, have been resolved, the Depositary Agent shall deliver to the Shareholders the remaining portion of the Escrow Fund not required to satisfy such claims. Deliveries of shares of Buyer Common Stock remaining in the Escrow Fund to the Shareholders pursuant to this Section 7.2(c) shall be made ratably in proportion to the respective contributions on their behalf to the Escrow Fund and Buyer shall use all its commercially reasonable efforts to have such shares delivered within five (5) business days of such resolution. In the case of any entitlement to a fractional share of Buyer Common Stock upon distribution, each such Shareholders shall receive in lieu thereof a cash payment equal
(i) such fractional part of a share of Buyer Common Stock multiplied by
(ii) the closing price on the NYSE (as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another nationally recognized source) for a share of Buyer Common Stock on the last trading day preceding such distribution date. Buyer shall make available to the Depositary Agent the funds necessary to make such payments in lieu of fractional shares, and in connection therewith, the Depositary Agent will deliver to Buyer the shares of Buyer Common Stock to which such payments relate.

(d) Protection of Escrow Fund. The Depositary Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and not as the property of Buyer and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. Any shares of Buyer Common Stock, or other securities which, by their terms, are or may be exercisable, convertible or exchangeable for or into Buyer Common Stock, that are issued or distributed by Buyer ("New Shares") in respect of Buyer Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund. New Shares issued in respect of shares of Buyer Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund, but shall be distributed to the record holders thereof. Cash dividends on Buyer Common Stock shall not be added to the Escrow Fund, but shall be distributed to the record holders of the Buyer Common Stock on the record date set for any such dividend. Each Shareholder shall have voting rights with respect to the shares of Buyer Common Stock contributed to the account of such Shareholder within the Escrow Fund (and on any voting securities added to the Escrow Fund in respect of such shares of Buyer Common Stock).

(e) Claims Upon Escrow Fund. Upon receipt by the Depositary Agent, at any time on or before the last day of the Escrow Period, but in each case prior to the expiration of the survival period for the applicable representation, warranty, covenant or agreement as set forth in Section 7.1, of an

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Officer's Certificate delivered by the Buyer: (A) stating that Buyer has paid or properly accrued or reasonably anticipates that it will have to pay or accrue Losses, directly or indirectly, as a result of any inaccuracy or breach of any representation, warranty, covenant or agreement of the Company contained herein, and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation or breach of warranty, agreement or covenant to which such item is related (including the specific provision breached), the Depositary Agent shall, subject to the provisions of Section 7.2(f) hereof, deliver to Buyer out of the Escrow Fund, as promptly as practicable, shares of Buyer Common Stock held in the Escrow Fund in an amount equal to such Losses. For the purposes of determining the number of shares of Buyer Common Stock to be delivered to Buyer out of the Escrow Fund pursuant to this Section 7.2(e), the shares of Buyer Common Stock shall be valued on a per share basis at the Average Buyer Stock Price.

(f) Objections to Claims. At the time of delivery by Buyer of any Officer's Certificate to the Depositary Agent, a duplicate copy of such certificate shall be delivered to the Shareholder Representatives and for a period of thirty (30) days after such delivery, the Depositary Agent shall make no delivery to Buyer of any Escrow Amounts pursuant to Section 7.2(e) hereof unless the Depositary Agent shall have received written authorization from the Shareholder Representatives to make such delivery. After the expiration of such thirty (30) day period, the Depositary Agent shall make delivery of shares of Buyer Common Stock from the Escrow Fund in accordance with Section 7.2(e) hereof, provided that no such payment or delivery may be made if the Shareholder Representatives shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Depositary Agent prior to the expiration of such thirty (30) day period.

(g) Resolution of Conflicts. In case the Shareholder Representatives shall object in writing to any claim or claims made in any Officer's Certificate, the Shareholder Representatives and Buyer shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Shareholder Representatives and Buyer should so agree, joint written instructions setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Depositary Agent. The Depositary Agent shall be entitled to rely on any such instructions and distribute shares of Buyer Common Stock from the Escrow Fund in accordance with the terms thereof. If no such agreement can be reached after good faith negotiation, either Buyer or the Shareholder Representatives may commence litigation or, upon written consent of Buyer and the Shareholder Representatives, binding arbitration to resolve the dispute.

7.3 Shareholder Representatives; Power of Attorney.

(a) Shareholder Representatives. In the event that the Merger is approved by the Shareholders, effective upon such vote, and without further act of any Shareholder, the Shareholder Representatives shall be appointed as agents and attorneys-in-fact, any two of which may take actions in such capacity without the joinder of the others, for each Shareholder (except such Shareholders, if any, as shall have perfected their dissenters' rights under Illinois Law), for and on behalf of Shareholders, to give and receive notices and communications, to authorize delivery to Buyer of shares of Buyer Common Stock from the Escrow Fund in satisfaction of claims by Buyer, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand litigation or arbitration and comply with orders and awards of courts and arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Shareholder Representatives for the accomplishment of the foregoing. Such agency may be changed by the Shareholders from time to time upon not less than thirty (30) days prior written notice to Buyer; provided, however, that the Shareholder Representatives may not be removed unless holders of a two-thirds interest in the Escrow Fund agree to such removal and to the identity of the substituted shareholder representatives. Any vacancy in the position of Shareholder Representative shall be filled by John Patience. No bond shall be required of the Shareholder Representatives, and the Shareholder Representatives shall not receive

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compensation for their services. Notices or communications to or from the Shareholder Representatives shall constitute notice to or from each of the Shareholders.

(b) Exculpation. The Shareholder Representatives shall not be liable for any act done or omitted hereunder as Shareholder Representatives while acting in good faith and in the exercise of reasonable judgment.

(c) Actions of the Shareholder Representatives. A decision, act, consent or instruction of any two of the Shareholder Representatives shall constitute a decision for all of the Shareholders for whom a portion of the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund, and shall be final, binding and conclusive upon each of such Shareholders, and the Depositary Agent and Buyer may rely upon any such decision, act, consent or instruction of the Shareholder Representatives as being the decision, act, consent or instruction of every such shareholder of the Company. The Depositary Agent and Buyer are hereby relieved from any liability to any Person for any acts done by them in accordance with such decision, act, consent or instruction of the Shareholder Representatives.

7.4 Third Party Claims. In the event Buyer or the Surviving Corporation receives written notice of a third-party claim (a "Third Party Claim") which Buyer reasonably expects may result in a demand against the Escrow Fund, Buyer shall provide the Shareholder Representatives with reasonably prompt written notice thereof. The Shareholder Representatives, as representative for the Shareholders, shall have the right to participate in or, by giving written notice to Buyer, to assume the defense of any Third Party Claim at the expense of the Escrow Fund and by counsel selected by the Shareholder Representatives (which counsel must be reasonably satisfactory to Buyer), and Buyer will cooperate in good faith (and shall be permitted to participate at Buyer's expense) in such defense; provided, however, that the Shareholder Representatives shall not be entitled to assume control of the defense of any Third Party Claim that (i) could reasonably be expected to have any impact on the ongoing operations or goodwill of the Surviving Corporation or Buyer or their intellectual property or (ii) could reasonably be expected to result in Losses in excess of the Escrow Fund. Buyer shall have the right in its sole discretion to settle any Third Party Claim contemplated by clause (i) or (ii) above; provided, however, that if Buyer settles any such Third Party Claim without the Shareholder Representatives' written consent (which consent shall not be unreasonably withheld or delayed), Buyer may not make a claim against the Escrow Fund with respect to the amount of Losses incurred by Buyer in such settlement unless the Shareholder Representatives unreasonably withheld or delayed such consent; provided, further, that the Shareholder Representatives may not settle any Third Party Claim without Buyer's written consent (which consent shall not be unreasonably withheld or delayed). In the event that the Shareholder Representatives have consented to any such settlement, the Shareholder Representatives shall have no power or authority to object under any provision of this Article 7 to the amount of any claim by Buyer against the Escrow Fund with respect to the amount of Losses incurred by Buyer in such settlement as consented to by the Shareholder Representatives.

7.5 Depositary Agent's Duties.

(a) Limitation on Duties of Depositary Agent. The Depositary Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Depositary Agent may receive after the date of this Agreement which are signed by an officer of Buyer and the Shareholder Representatives, and may rely and shall be protected in relying or refraining from acting, in good faith, on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Depositary Agent shall not be liable for any act done or omitted hereunder as Depositary Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith.

(b) Compliance with Orders. The Depositary Agent is hereby expressly authorized to comply with and obey orders of any court of law or Governmental Authority or regulatory authority, notwithstanding any notices, warnings or other communications from any party or any other Person to

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the contrary. In case the Depositary Agent obeys or complies with any such order, the Depositary Agent shall not be liable to any of the parties hereto or to any other Person by reason of such compliance, notwithstanding any such order being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction or proper authority.

(c) Limitations on Liability of Depositary Agent. The Depositary Agent shall not be liable: in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder; or for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Depositary Agent.

(d) Good Faith of Depositary Agent. In performing any duties under the Agreement, the Depositary Agent shall not be liable to any party for damages, losses or expenses, except for damages, losses or expenses attributable to the gross negligence or willful misconduct of the Depositary Agent. The Depositary Agent shall not incur any such liability for (i) any act or failure to act made or omitted in good faith, or (ii) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that the Depositary Agent shall in good faith believe to be genuine, nor will the Depositary Agent be liable or responsible for forgeries, fraud, impersonations or determining the scope of any representative authority. In addition, the Depositary Agent may consult with legal counsel in connection with the Depositary Agent's duties under this Agreement and shall be fully protected in any act taken, suffered or permitted by the Depositary Agent in good faith in accordance with the advice of counsel. The Depositary Agent is not responsible for determining and verifying the authority of any Person acting or purporting to act on behalf of any party to this Agreement.

(e) Non-responsibility of Depositary Agent. If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Depositary Agent will not be required to determine the controversy or to take any action regarding it. The Depositary Agent may hold all documents and shares of Buyer Common Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Depositary Agent's discretion, the Depositary Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Depositary Agent will not be liable for any damages. Furthermore, the Depositary Agent may at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Depositary Agent is authorized to deposit with the clerk of the court all documents and shares of Buyer Common Stock held in escrow, except all costs, expenses, charges and reasonable attorneys' fees incurred by the Depositary Agent due to the interpleader action and which Buyer and the Shareholder Representatives, on behalf of the Shareholders, jointly and severally agree to pay. Upon initiating such action, the Depositary Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement.

(f) Indemnification of Depositary Agent. Buyer agrees to indemnify and hold the Depositary Agent harmless against any and all Losses incurred by the Depositary Agent in connection with the performance of the Depositary Agent's duties under this Agreement, including but not limited to any litigation from this Agreement or involving its subject matter.

(g) Resignation of Depositary Agent. The Depositary Agent may resign at any time upon giving at least thirty (30) days' written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor Depositary Agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor Depositary Agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor Depositary Agent within such time, the Depositary Agent shall have the right to appoint a successor Depositary Agent authorized to do business in the State of New York. The successor Depositary Agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers and duties of the

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predecessor Depositary Agent as if originally named as Depositary Agent. Upon such succession, the original Depositary Agent shall be discharged from any further duties and liability under this Agreement.

(h) Fees. All fees of the Depositary Agent for performance of its duties hereunder shall be paid by Buyer. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Depositary Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Depositary Agent is made a party to, or intervenes in, any action or proceeding pertaining to the Escrow Fund or its subject matter, the Depositary Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorneys' fees and expenses occasioned by such default, delay, controversy or action or proceeding.

ARTICLE 8

TERMINATION, AMENDMENT AND WAIVER

8.1 Termination by Mutual Agreement. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the Shareholder Approval, by mutual written consent of the Company and Buyer by action of their respective boards of directors.

8.2 Termination by Either Buyer or the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by action of the board of directors of either Buyer or the Company if:

(a) the Merger shall not have been consummated by December 31, 1999, whether such date is before or after the date of the Shareholder Approval (the "Termination Date"); provided, however, that if any condition of Closing set forth in Section 6.1 that remains reasonably capable of satisfaction has not been fulfilled or waived prior to December 31, 1999, the Termination Date shall be automatically extended to February 28, 2000;

(b) the Shareholder Approval shall not have been obtained at the Company Shareholder Meeting or at any adjournment or postponement thereof; or

(c) any Law permanently restraining, enjoining or otherwise prohibiting consummation of the Merger shall become final and non-appealable (whether before or after the Shareholder Approval);

provided, however, that the right to terminate this Agreement pursuant to this Section 8.2 shall not be available to any party that has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of the Merger to be consummated.

8.3 Termination by the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the Shareholder Approval, by action of the Company board of directors if:

(a) there is a breach by Buyer or Subsidiary of any representation, warranty, covenant or agreement contained in this Agreement that cannot be cured and would cause a condition set forth in Section 6.3(a) or 6.3(b) to be incapable of being satisfied as of the Termination Date; or

(b) the actual Average Buyer Stock Price (determined without regard to clause (i) of the proviso to such definition (the "Minimum Price Proviso")) is less than the Minimum Average Buyer Stock Price and the Company gives written notice to Buyer during the 24 hour period following the calculation of the Average Buyer Stock (a "Company Termination Notice") that the Company elects to terminate this Agreement; provided, however, that Buyer shall have the right during the 24 hour period following receipt of a Company Termination Notice to give written notice to the Company (the "Top-Up Notice") that Buyer elects to waive the application of the Minimum Price Proviso in the calculation of the Average Buyer Stock Price, in which case the Minimum Price Proviso shall be

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disregarded in the calculation of the Average Buyer Stock Price for all purposes under this Agreement. Upon delivery of the Top-Up Notice, the Company Termination Notice shall be null and void.

8.4 Termination by Buyer. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by Buyer, if:

(a) there is a breach by the Company of any representation, warranty, covenant or agreement contained in this Agreement that cannot be cured and would cause a condition set forth in Section 6.2(a) or 6.2(b) to be incapable of being satisfied as of the Termination Date;

(b) the actual Average Buyer Stock Price (determined without regard to clause (ii) of the proviso to such definition (the "Maximum Price Proviso")) is greater than the Maximum Average Buyer Stock Price and Buyer gives written notice to the Company during the 24 hour period following the calculation of the Average Buyer Stock (a "Buyer Termination Notice") that Buyer elects to terminate this Agreement; provided, however, that the Company shall have the right during the 24 hour period following receipt of a Buyer Termination Notice to give written notice to Buyer (the "Reduction Notice") that the Company elects to waive the application of the Maximum Price Proviso in the calculation of the Average Buyer Stock Price, in which case the Maximum Price Proviso shall be disregarded in the calculation of the Average Buyer Stock Price for all purposes under this Agreement. Upon delivery of the Reduction Notice, the Buyer Termination Notice shall be null and void; or

(c) the condition regarding appraisal rights set forth in Section 6.2(e) is not satisfied.

8.5 Effect of Termination and Abandonment.

(a) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article 8, this Agreement (other than this
Section 8.5, Section 5.14 and Article 9) shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, employees, agents, legal and financial advisors, or other representatives); provided, however, that except as otherwise provided herein, no such termination shall relieve any party hereto of any liability or damages resulting from any breach of this Agreement.

(b) In the event that within 12 months of the termination of this Agreement pursuant to Section 8.2(a), 8.2(b), 8.4(a) or 8.4(b) any Acquisition Proposal by a third party is entered into, agreed to or consummated by the Company, then the Company shall pay Buyer a termination fee of $6,000,000, in same-day funds, on the earlier of the date an agreement is entered into in respect of an Acquisition Proposal or an Acquisition Proposal is consummated.

(c) The Company acknowledges that the agreements contained in Section 8.5(b) are an integral part of the transactions contemplated by this Agreement and constitute liquidated damages and not a penalty, and that, without these agreements, Buyer and Subsidiary would not have entered into this Agreement. If the Company fails to promptly pay the amount due pursuant to Section 8.5(b), and, in order to obtain such payment, Buyer commences a suit which results in a judgment against the Company for the fee set forth in this Section 8.5, the Company shall pay to Buyer its costs and expenses (including attorneys' fees) in connection with such suit, together with interest from the date of termination of this Agreement on the amounts owed at the prime rate of Bank of America, N.A., in effect from time to time during such period plus two percent.

8.6 Amendment. This Agreement may be amended by action taken by the Company, Buyer and Subsidiary at any time before or after Shareholder Approval, but after any such approval, no amendment shall be made which changes the amount or form of the Merger Consideration. This Agreement may not be amended except by an instrument in writing signed on behalf of the parties hereto.

8.7 Extension; Waiver. At any time prior to the Effective Time, each party hereto (for these purposes, Buyer and Subsidiary shall together be deemed one party and the Company shall be deemed the other party) may (i) extend the time for the performance of any of the obligations or other acts of the

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other party, (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document, certificate or writing delivered pursuant hereto, or (iii) waive compliance by the other party with any of the agreements or conditions contained herein. Any agreement on the part of either party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights.

ARTICLE 9

MISCELLANEOUS

9.1 Confidentiality. Pending Closing, the agreement executed by the Parties on July 26, 1999, concerning confidentiality shall remain in full force and effect.

9.2 Notices. All Notices under this Agreement shall be in writing and sent by certified or registered mail, overnight messenger service, telecopier or personal delivery, as follows:

(a) if to the Company, to:

Power Trends, Inc.
27715 Diehl Road
Warrenville, Illinois 60555 Attention: Mr. G. Russell Ashdown President and Chief Executive Officer Telecopier: (630) 393-6778

with a copy to:

Johnson and Colmar
300 South Wacker Drive
Suite 1000
Chicago, Illinois 60606
Attention: Michael Bonn
Telecopier: (312) 922-9283

(b) if to Buyer and Subsidiary, to:

Texas Instruments Incorporated 7839 Churchill Way, M/S 3995 Dallas, Texas 75251
-- or --
P.O. Box 650311, M/S 3995
Dallas, Texas 75265
Attention: Charles D. Tobin Telecopier: (972) 917-3804

with copies to:

Texas Instruments Incorporated 8505 Forest Lane, M/S 8658 Dallas, Texas 75243
-- or --
P.O. Box 660199, M/S 8658
Dallas, Texas 75266
Attention: Richard J. Agnich Telecopier: (972) 480-5061

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and

Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300 Dallas, Texas 75201-6950
Attention: R. Scott Cohen
Telecopier: (214) 746-7777

(c) if to the Shareholder Representatives, to:

Mr. William N. Sick, Jr.
565 North Sheridan Road
Winnetka, Illinois 60093
Telecopier: (847) 501-5108

with a copy to:

Johnson and Colmar
300 South Wacker Drive
Suite 1000
Chicago, Illinois 60606
Attention: Michael Bonn
Telecopier: (312) 922-9283

All Notices sent by certified or registered mail shall be considered to have been given three business days after being deposited in the mail. All Notices sent by overnight courier service, telecopier or personal delivery shall be considered to have been given when actually received by the intended recipient. A Party or the Shareholder Representatives may change its or their address for purposes of this Agreement by Notice in accordance with this Section 9.2.

9.3 Further Assurances. Each Party agrees (i) to furnish upon request to the other Party such further information, (ii) to execute and deliver to the other Party such other documents and (iii) to do such other acts and things, as the other Party reasonably requests for the purpose of carrying out the intent of this Agreement and the documents and instruments referred to in this Agreement.

9.4 Entire Agreement. This Agreement supersedes all prior agreements between the Parties with respect to its subject matter and constitutes (together with the Disclosure Schedule and the Parties' Closing Documents) a complete and exclusive statement of the terms of the agreement between the Parties with respect to its subject matter. This Agreement may not be amended except by a written agreement signed by the Party to be charged with the amendment.

9.5 Assignment. No Party may assign any of its rights under this Agreement without the prior written consent of the other Party or Parties.

9.6 No Third Party Beneficiaries. Nothing in this Agreement shall be considered to give any Person other than the Parties any legal or equitable right, claim or remedy under or in respect of this Agreement or any provision of this Agreement. This Agreement and all of its provisions are for the sole and exclusive benefit of the Parties and their respective successors and permitted assigns.

9.7 Severability. If any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement which is held invalid or unenforceable only in part shall remain in full force and effect to the extent not held invalid or unenforceable.

9.8 Captions. The captions of articles and sections of this Agreement are for convenience only and shall not affect this the construction or interpretation of this Agreement.

9.9 Construction. All references in this Agreement to "Section" or "Sections" refer to the corresponding section or sections of this Agreement. All words used in this Agreement shall be construed

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to be of the appropriate gender or number as the context requires. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms.

9.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement and all of which, when taken together, shall be considered to constitute one and the same agreement.

9.11 Governing Law. This Agreement shall be governed by the Laws of the State of Illinois without regard to conflicts of laws principles.

9.12 Binding Effect. This Agreement shall apply to, be binding in all respects upon and inure to the benefit of Parties and their respective successors and permitted assigns.

In witness, the Parties have executed this Agreement.

POWER TRENDS, INC.

By:  /s/ WILLIAM N. SICK, JR.
  ----------------------------------
    Name: William N. Sick, Jr.
    Title:  Chairman of the Board

TEXAS INSTRUMENTS INCORPORATED

By:   /s/ DELBERT A. WHITAKER
  ----------------------------------
    Name: Delbert A. Whitaker
    Title:  Senior Vice President

POWER ACQUISITION CORP.

By:   /s/ DELBERT A. WHITAKER
  ----------------------------------
   Name: Delbert A. Whitaker
   Title:  President

This Agreement is countersigned by the undersigned Depositary Agent as of the date first above written to acknowledge and agree to the provisions of Article 7 that pertain to the Depositary Agent.

HARRIS TRUST AND SAVINGS BANK,
as Depositary Agent

By:       /s/ D.G. DONOVAN
    --------------------------------
    Name: D.G. Donovan
    Title:  Assistant Vice President

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ANNEX I

DEFINITIONS

Accounts Receivable means accounts receivable, trade receivables, notes receivable and other receivables of the Business.

Acquisition Proposal is defined in Section 5.9(a).

Affiliate means, in respect of any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the first Person. As used in this definition, "control" means the direct or indirect possession of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company.

APB 16 means Accounting Principles Bulletin No. 16.

Articles of Incorporation means the Company's articles of incorporation, as amended to date.

Articles of Merger is defined in Section 2.3(a).

Assumed Stock Option is defined in Section 2.5(n).

Authorized Officer means a corporate officer of a corporation who is duly authorized to perform the specified action.

Average Buyer Stock Price is defined in Section 2.4(c).

Books and Records means books, records, ledgers, files, documents, correspondence, lists, reports, creative materials, advertising and promotional materials and other printed or written materials.

Business means the Company's business of manufacturing and selling integrated switching regulators and DC-to-DC converters with a focus on on-board modular power solutions.

Buyer means Texas Instruments Incorporated, a Delaware corporation with its principal executive offices located at 8505 Forest Lane, Dallas, Texas 75243.

Buyer Common Stock is defined in the Background Section B.

Buyer Legal Opinion is defined in Section 2.3(c)(3).

Buyer SEC Reports is defined in Section 4.7.

Buyer Termination Notice is defined in Section 8.4(b).

Certificates is defined in Section 2.5(b).

Cleanup Liability means any Liability under any Environmental Law for corrective action, including any investigation, cleanup, removal, containment or other remedial or response action or activity of the type covered by the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

Closing is defined in Section 2.2.

Closing Date means the date that Closing occurs.

Closing Documents means, in respect of a Party, the documents, instruments and agreements that it is required to deliver or enter into at Closing pursuant to the terms of this Agreement.

Common Stock means the Company's common stock, no par value per share.

Company means Power Trends, Inc., an Illinois corporation with its principal executive offices located at 27715 Diehl Road, Warrenville, Illinois 60555, and, with respect to the representations and warranties contained in Article 3, shall include the Foreign Sales Corporation.

A-39

Company Affiliate Agreement is defined in Section 5.13.

Company Legal Opinion is defined in Section 2.3(b)(3).

Company Option Plans is defined in Section 2.5(n).

Company Shareholder Meeting is defined in Section 5.4.

Company Stock Option is defined in Section 2.5(n).

Company Termination Notice is defined in Section 8.3(b).

Consent means any approval, consent, ratification, waiver or other authorization (including any Permit).

Contract means any legally binding contract, agreement, obligation, promise or undertaking (whether written or oral, and whether express or implied).

Corporate Governance Agreement means (i) the 1989 Purchase Agreement, 1990 Purchase Agreement, 1991 Purchase Agreement, 1993 Purchase Agreement or 1994 Purchase Agreement (as those terms are defined in Part 12 of Article Four of the Company's Articles of Incorporation), (ii) the Registration Agreement or Put Agreement (as those terms are similarly defined), (iii) any restricted stock agreement pursuant to which the Company has issued and sold any shares of Preferred or Common Stock, or (iv) any other Contract to which the Company and one or more Shareholders are parties which restricts the transfer of any shares of Preferred or Common Stock, grants any Person a right of first refusal to purchase any shares of Preferred or Common Stock, or regulates the voting of any shares of Preferred or Common Stock.

Default means, in respect of a Contract, a breach or violation of or default under the Contract, or the occurrence of an event which with notice or the passage of time (or both) would constitute a breach, violation or default or permit termination, modification or acceleration of the Contract.

Defect is defined in Section 3.31(b).

Depositary Agent is defined in Section 7.2(a).

Disclosure Schedule means the disclosure schedule that the Company has delivered to Buyer concurrently with the execution of this Agreement by the Parties.

Dissenting Shares is defined in Section 2.5(m).

Dissenting Shareholders is defined in Section 2.5(m).

DOJ is defined in Section 5.6(b).

Effective Time is defined in Section 2.4(a).

Employee Benefit Plan means (i) an "employee pension plan" as defined in sec. 3(2) of ERISA, (ii) an "employee welfare benefit plan" as defined in sec. 3(1) of ERISA or (iii) any other employee benefit or fringe benefit plan or program, whether established by Law, a written agreement or other instrument, or custom or informal understanding.

Environmental Laws means, in respect of a Facility or other Real Property, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and Resource Conservation and Recovery Act of 1976, and all other applicable Laws and Orders relating to or imposing Liability or standards of conduct for the use, handling, generation, manufacturing, distribution, processing, collection, transportation, transfer, storage, treatment, disposal, cleanup, or Release of Hazardous Materials.

Environmental Liability means any Cleanup Liability or any other Liability under any Environmental Law or Occupational Safety and Health Law, including any Liability arising from a Release of Hazardous Materials at, on, in or under any Facility or other Real Property.

A-40

Equipment means machinery, equipment, spare parts, furniture, fixtures and other items of tangible personal property of any type or kind used, held for use or useful in the conduct of the Business (but not including Inventories or Leasehold Improvements).

Equipment Lease means a Contract for the lease of Equipment or for the purchase of Equipment under a conditional sales or title retention agreement.

ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations issued by the Internal Revenue Service and Department of Labor.

Escrow Amount is defined in Section 7.2(a).

Escrow Fund is defined in Section 7.2(a).

Escrow Period is defined in Section 7.2(c).

Exchange Act means the Securities Exchange Act of 1934, as amended, and the related rules and regulations issued by the SEC thereunder.

Exchange Agent is defined in Section 2.5(a).

Exchange Fund is defined in Section 2.5(a).

Exchange Ratio is defined in Section 2.4(c).

Expiration Date is defined in Section 7.1.

Facility means any office, manufacturing facility, warehouse or other location or site that the Company currently owns, leases, operates, occupies or uses, or that it formerly owned, leased, operated, occupied or used, in the conduct of the Business.

Facility Lease means a lease of or other right to operate, occupy or use a Facility that the Company or any of its subsidiaries or Affiliates currently leases, operates, occupies or uses in connection with the conduct of the Business.

Financial Statements means the Company's audited financial statements, together with the notes thereto, for the years ended June 30, 1999, 1998 and 1997.

Foreign Sales Corporation means Power Trends Foreign Sales Corporation, a corporation organized under the laws of Barbados.

Former Facility Lease means a lease of or other right to operate, occupy or use a Facility that the Company or any of its current or former subsidiaries or Affiliates or predecessors-in-interest formerly leased, operated, occupied or used in connection with the conduct of the Business or prior operations.

FTC is defined in Section 5.6(b).

GAAP means United States generally accepted accounting principles, applied on a consistent basis.

Governmental Authority means (i) any federal, state, provincial, local, municipal, foreign or other government and (ii) any governmental or quasi-governmental body of any kind (including any administrative or regulatory agency, department, branch, commission or other entity).

Hazardous Activity means the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment or use of Hazardous Materials.

Hazardous Materials means any waste or other substance of any kind that is or was listed, defined, designated or classified under any Law or Order as hazardous, radioactive or toxic or as a pollutant or contaminant.

HSR means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Illinois Business Corporation Act means the Illinois Business Corporation Act of 1983, as amended.

A-41

Internal Revenue Code means the U.S. Internal Revenue Code of 1986, as amended.

June 30 Balance Sheet means the Company's balance sheet as of June 30, 1999 included in the Financial Statements.

Knowledge means, in respect of the Company or Buyer, the actual awareness by an officer of the Company or Buyer, as the case may be, of a particular fact or other specified matter.

Law means any law, ordinance, code, regulation, rule, guideline or policy of any Governmental Authority or any principle or rule of common law.

Leasehold Improvements means depreciable or amortizable improvements made by (or on behalf of) the tenant under a Facility Lease which belong to the tenant and not to the landlord.

Liability means any liability or obligation, whether known or unknown, absolute or contingent, liquidated or unliquidated, or due or to become due.

Lien means any lien, security interest, claim, community property interest, equitable interest, option, pledge, right of first refusal or other encumbrance or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

Losses is defined in Section 7.2(b).

Marks means trade marks, service marks, trade names, assumed names, brand names and logotypes (including translations, adaptations, derivations and combinations) and related applications, registrations and renewals.

Material Adverse Effect means a material adverse effect on the business, operations, financial position or assets of the Company taken as a whole.

Maximum Average Buyer Stock Price is defined in Section 2.4(c)(2).

Maximum Price Proviso is defined in Section 8.4(b).

Merger is defined in Section 2.1.

Merger Consideration is defined in Section 2.4(c).

Minimum Average Buyer Stock Price is defined in Section 2.4(c).

Minimum Price Proviso is defined in Section 8.3(b).

New Shares is defined in Section 7.2(d).

Notice means any notice, demand, charge, complaint or other communication from any Person.

Notices is defined in Section 3.31(a).

NYSE is defined in Section 2.4(c).

Occupational Safety and Health Laws means the Occupational Safety and Health Act of 1970, as amended, and all other applicable Laws and Orders intended to provide safe and healthful working conditions and to reduce occupational safety and health hazards.

Officer's Certificate means a certificate signed by an Authorized Officer whose responsibilities extend to the subject matter of the certificate.

Option means an option to purchase shares of Common Stock granted under the Company's Long-Term Incentive Plan.

Order means any order, judgment, decree, ruling, consent decree, settlement agreement, stipulation, injunction or subpoena entered or issued by any court, Governmental Authority or arbitrator.

Ordinary Course of Business means, in respect of the Company, an action taken by it which (i) is consistent with its past practices and is taken in the ordinary course of the normal day-to-day operations

A-42

and (ii) is not required by applicable Law or its Organizational Documents to be authorized by its board of directors.

Organizational Documents means the certificate or articles of incorporation and by-laws of a corporation, each as amended to date.

Party means both Buyer and Subsidiary (or either one of them, as the context requires) or the Company, and Parties means all of them.

Patents means patents, patent applications and patent disclosures and related reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations.

Permit means any approval, consent, license, permit, registration, certificate, waiver, confirmation or other authorization issued, granted or otherwise made available by any Governmental Authority.

Person means any individual, corporation, general or limited partnership, limited liability company, joint venture, association, organization, estate, trust or other entity or any Governmental Authority.

Plan of Merger is defined in Section 2.3(a).

Preferred Stock means the Company's preferred stock.

Product is defined in Section 3.31(b).

Proprietary Information means trade secrets and proprietary or confidential business information, including: (i) ideas, formulas, discoveries and inventions (whether patentable or unpatentable, and whether or not reduced to practice),
(ii) know-how, and (iii) computer source codes, programs, software and documentation (other than those that are commercially available).

Proxy Statement is defined in Section 3.33.

Real Property means land or an interest in land (other than an interest in a Facility Lease).

Recalls is defined in Section 3.31(a).

Reduction Notice is defined in Section 8.4(b).

Related Party means, in respect of the Company, (i) any Affiliate of the Company or (ii) any Person for which any officer or director of the Company is serving as an officer, director, partner, manager, executor, trustee or in a similar capacity or in which any officer or director of the Company has an equity, beneficial or other financial interest.

Release means a spill, leak, emission, discharge, deposit, dumping or other release into the environment, whether intentional or unintentional.

Representatives is defined in Section 7.1.

S-4 is defined in Section 3.33.

SEC means the Securities and Exchange Commission.

Securities Act means the Securities Act of 1933, as amended, and the related rules and regulations issued by the SEC thereunder.

Schedule means a schedule contained in the Disclosure Schedule (including a subschedule of any such schedule).

Shareholder means a Person who is the owner of record of one or more Shares as of Closing.

Shareholder Approval means the adoption of this Agreement and approval of the Merger by the affirmative approval of the holders of (i) Common Stock representing two-thirds of the votes that may be cast by the holders of all outstanding Common Stock (voting as a single class) and (ii) a majority of the outstanding Preferred Stock (voting as a single class), in each case as of the record date set for such action.

A-43

Shareholder Representatives means William N. Sick, Jr., James E. Forrest, and Lloyd D. Ruth.

Shares means shares of Preferred Stock or Common Stock, or both.

Subsidiary means Power Acquisition Corp., an Illinois corporation and wholly owned subsidiary of Buyer.

Suit means any action, suit, proceeding, arbitration, audit, hearing or investigation (whether civil, criminal, administrative or investigative in nature, and whether formal or informal) by, before or in any court, Governmental Authority or arbitrator.

Surviving Corporation is defined in Section 2.1.

Systems is defined in Section 3.30(f).

Takeover Statutes is defined in Section 3.32.

Tax means any federal, state, provincial, local, municipal or foreign tax, charge, fee, levy, or similar assessment or liability, including without limitation, income, franchise, gross receipts, capital stock, profits, withholding, social security, unemployment, real property, personal property, stamp, excise, occupation, sales, use, transfer, value added, estimated or other tax (including any related interest, fines, penalties and additions), whether disputed or not, and any transferee liability in respect of Taxes, any liability in respect of Taxes imposed by contract, Tax sharing agreement, Tax reimbursement agreement, or any similar agreement.

Tax Return means any return (including any information return), report, statement, form or other document required to be filed with or submitted to any Governmental Authority in connection with the determination, assessment, collection or payment of any Tax.

Termination Date is defined in Section 8.2(a).

Third Party Claim is defined in Section 7.4.

Threatened means, in respect of a Suit, that Notice has been given, or an other event has occurred or any other circumstance exists, that would lead a prudent individual to conclude that the Suit is likely to be initiated or otherwise pursued in the future.

Top-Up Notice is defined in Section 8.3(b).

Voting Agreement is defined in the Background Section D.

Warrant is defined in Section 2.5(o).

A-44

EXHIBIT 5

[WEIL, GOTSHAL & MANGES LLP LETTERHEAD]

October 21, 1999

Texas Instruments Incorporated
8505 Forest Lane
P.O. Box 660199
Dallas, Texas 75266-0199

Ladies and Gentlemen:

We have acted as counsel to Texas Instruments Incorporated, a Delaware corporation (the "Company"), in connection with the preparation and filing on the date hereof by the Company with the Securities and Exchange Commission of a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended, relating to the proposed offering of up to 2,165,250 shares (the "Shares") of the common stock, $1.00 par value per share, of the Company pursuant to the Merger Agreement (the "Merger Agreement"), dated as of September 29, 1999, by and among the Company, Power Trends, Inc., an Illinois corporation ("Power Trends"), and Power Acquisition Corp., an Illinois corporation and wholly owned subsidiary of the Company. The Shares are to be issued to the stockholders of Power Trends in accordance with terms of the Merger Agreement in exchange for each such stockholder's shares of common stock, no par value, Series A-1 Convertible Preferred Stock, no par value, Series A-2 Convertible Preferred Stock, no par value, Series A-3 Convertible Preferred Stock, no par value, Series A-4 Convertible Preferred Stock, no par value, and Series B-1 Convertible Preferred Stock, no par value (collectively, "Power Trends Capital Stock"), of Power Trends.

In so acting, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Restated Certificate of Incorporation of the Company, as amended, and such corporate records, agreements, documents and other instruments, and such certificates or comparable documents of public officials and of officers and representatives of the Company, and have made such inquiries of such officers and representatives as we have deemed relevant and necessary as a basis for the opinions hereinafter set forth.

In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents. As to all questions of fact material to this opinion that have not been independently established, we have relied upon certificates or comparable documents of officers and representatives of the Company.

Based on the foregoing, and subject to the qualifications stated herein, we are of the opinion that:

1. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware.


2. The Shares have been duly authorized and, when issued and delivered to the stockholders of Power Trends in exchange for shares of Power Trends Capital Stock in accordance with the terms of the Merger Agreement, will be validly issued, fully paid and nonassessable.

The opinions expressed herein are limited to the corporate laws of the State of Delaware and we express no opinion as to the effect on the matters covered by this letter of the laws of any other jurisdiction.

We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the Prospectus forming a part of the Registration Statement.

Very truly yours,

Weil, Gotshal & Manges, LLP


EXHIBIT 8(a)

October 21, 1999

Texas Instruments Incorporated
8505 Forest Lane
P.O. Box 660199
Dallas, Texas 75266-0199

Ladies and Gentlemen:

We have acted as counsel to Texas Instruments Incorporated ("Texas Instruments"), a Delaware corporation, in connection with (i) the Merger, as defined and described in the Merger Agreement, dated as of September 29, 1999 (the "Merger Agreement"), among Power Trends, Inc. ("Power Trends"), an Illinois corporation, Texas Instruments, and Power Acquisition Corp. ("Subsidiary"), an Illinois corporation and a direct wholly owned subsidiary of Texas Instruments, and (ii) the preparation and filing of the Registration Statement with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), on October 15, 1999 (the "Registration Statement"), which includes the Proxy Statement/Prospectus of Power Trends (the "Proxy Statement/Prospectus"). Unless otherwise indicated, each capitalized term used herein has the meaning ascribed to it in the Merger Agreement.

In formulating our opinion, we have examined the Merger Agreement, the Registration Statement, the Proxy Statement/Prospectus, and such other documents and corporate records as we have deemed relevant and necessary as a basis for the opinion hereinafter set forth. Our opinion set forth below assumes (i) the validity and accuracy of the documents and corporate records that we have examined and the facts and representations concerning the Merger that have come to our attention during our engagement and (ii) that the Merger is consummated in the manner contemplated by, and in accordance with the terms set forth in, the Merger Agreement, the Registration Statement, and the Proxy Statement/Prospectus.

Based on the foregoing, subject to the next succeeding paragraph, and assuming full compliance with all the terms of the Merger Agreement, the Registration Statement, and the Proxy Statement/Prospectus, it is our opinion that the discussion included in the Proxy Statement/Prospectus under the heading "U.S. Federal Income Tax Consequences of the Merger," insofar as it constitutes statements of law or legal conclusions and except to the extent qualified therein, is accurate in all material respects.


No opinion is expressed on any matter other than those specifically covered by the foregoing opinion.

The foregoing opinion is based on current provisions of the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published pronouncements of the Internal Revenue Service, and case law, any of which may be changed at any time with retroactive effect. Any change in applicable laws or in the statements, facts, assumptions and representations on which we have relied, may affect the continuing validity of the opinion set forth herein. We assume no responsibility to inform you of any such change or inaccuracy that may occur or come to our attention.

The opinion expressed herein is rendered solely for your benefit in connection with the transactions described herein. This opinion may not be used or relied upon by any other person, nor may this letter or any copies thereof be furnished to a third party, filed with a governmental agency, quoted, cited or otherwise referred to without our prior written consent.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to this firm under the headings "SUMMARY - The Merger Agreement - Conditions to Completion of the Merger," "THE MERGER - U.S. Federal Income Tax Consequences of the Merger," "THE MERGER AGREEMENT Conditions to the Completion of the Merger," and "LEGAL MATTERS" in the Proxy Statement/Prospectus. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder.

Very truly yours,

WEIL, GOTSHAL & MANGES LLP

2

EXHIBIT 8(b)

October 21, 1999

Power Trends, Inc.
27715 Diehl Road
Warrenville, Illinois 60555

Ladies and Gentlemen:

We have acted as counsel to Power Trends, Inc., an Illinois corporation ("Power Trends"), in connection with (i) the Merger, as defined in the Merger Agreement, dated as of September 29, 1999 (the "Merger Agreement"), entered into by Texas Instruments Incorporated, a Delaware corporation ("Texas Instruments"), Power Acquisition Corp., an Illinois corporation and a direct wholly-owned subsidiary of Texas Instruments ("Subsidiary"), and Power Trends, and (ii) the preparation and filing of a Registration Statement on Form S-4 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") on October 15, 1999. The Registration Statement includes the proxy statement/prospectus of Power Trends (the "Proxy Statement/Prospectus"). All capitalized terms used in this opinion letter without being defined have the same meanings that they have in the Merger Agreement.

In rendering our opinion in the following paragraph ("our opinion"), we have examined the Merger Agreement, the Registration Statement, the Proxy Statement/Prospectus, and such other documents and corporate records as we have considered relevant and necessary as a basis for our opinion. We have assumed the validity and accuracy of the documents and corporate records that we have examined and of the facts and representations concerning the Merger that have come to our attention during our engagement. We have also assumed that the Merger will be consummated in the manner contemplated by, and in accordance with the terms of or as described by, the Merger Agreement, the Registration Statement and the Proxy Statement/Prospectus.

On the basis of our examination, and subject to the assumptions described in the preceding paragraph and to the qualifications and limitations described in the next three paragraphs, and assuming full compliance with all of the terms of the Merger Agreement, the Registration Statement, and the Proxy Statement/Prospectus, it is our opinion that the discussion included in the Proxy Statement/Prospectus under the heading "THE MERGER--U.S. Federal Income Tax Consequences of the Merger," insofar as this discussion contains statements of law or legal conclusions and except to the extent that it is qualified by its own terms, is accurate in all material respects.

We do not express an opinion on any matter other than the matters specifically covered in the preceding paragraph.


Our opinion is based on current provisions of the Internal Revenue Code of 1986, as amended (the "IRC"), Treasury Regulations promulgated under the IRC, published revenue rulings, revenue procedures and other pronouncements of the Internal Revenue Service, and case law, any of which may be changed at any time with retroactive effect. Any such change, or any change in the statements, facts, assumptions and representations on which we have relied, may affect the continuing validity of our opinion. We assume no responsibility to inform you of any such change or of any inaccuracy that may occur or come to our attention.

Our opinion is rendered to you solely for your benefit in connection with the Merger, the Registration Statement and the Proxy Statement/Prospectus. Our opinion may not be used or relied upon by any other person or entity, nor may this opinion letter or any copies be furnished to a third party, filed with a governmental agency, quoted, cited or otherwise referred to without our prior written consent.

We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the references to this firm under the headings, "SUMMARY--The Merger Agreement--Conditions to Completion of the Merger," "THE MERGER--U.S. Federal Income Tax Consequences of the Merger," "THE MERGER AGREEMENT--Conditions to the Completion of the Merger," and "LEGAL MATTERS" in the Proxy Statement/Prospectus. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.

Very truly yours,

JOHNSON AND COLMAR


EXHIBIT 10(m)

AGREEMENT AND PLAN OF MERGER

DATED AS OF JULY 25, 1999

AMONG

UNITRODE CORPORATION

TEXAS INSTRUMENTS INCORPORATED

AND

UNICORN ACQUISITION CORP.



TABLE OF CONTENTS

Article I             THE MERGER.................................................................................2

         SECTION 1.1           The Merger........................................................................2

         SECTION 1.2           Effective Time....................................................................2

         SECTION 1.3           Closing of the Merger.............................................................2

         SECTION 1.4           Effects of the Merger.............................................................2

         SECTION 1.5           Charter and Bylaws................................................................2

         SECTION 1.6           Directors.........................................................................3

         SECTION 1.7           Officers..........................................................................3

Article II            CONVERSION OF SECURITIES...................................................................3

         SECTION 2.1           Conversion of Shares..............................................................3

         SECTION 2.2           Stock Options.....................................................................4

         SECTION 2.3           Exchange Fund.....................................................................5

         SECTION 2.4           Exchange Procedures...............................................................6

         SECTION 2.5           Distributions with Respect to Unsurrendered Certificates..........................6

         SECTION 2.6           No Further Ownership Rights in Company Common Stock...............................7

         SECTION 2.7           No Fractional Shares of Parent Common Stock.......................................7

         SECTION 2.8           Termination of Exchange Fund......................................................7

         SECTION 2.9           No Liability......................................................................7

         SECTION 2.10          Investment of the Exchange Fund...................................................8

         SECTION 2.11          Lost Certificates.................................................................8

         SECTION 2.12          Withholding Rights................................................................8

         SECTION 2.13          Stock Transfer Books..............................................................8

Article III           REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................8

         SECTION 3.1           Organization and Qualification; Subsidiaries......................................9

         SECTION 3.2           Capitalization of the Company and Its Subsidiaries................................9

         SECTION 3.3           Authority Relative to This Agreement.............................................10

         SECTION 3.4           SEC Reports; Financial Statements................................................11

         SECTION 3.5           No Undisclosed Liabilities.......................................................11

         SECTION 3.6           Absence of Changes...............................................................11

         SECTION 3.7           Information Supplied.............................................................13

         SECTION 3.8           Consents and Approvals...........................................................14

         SECTION 3.9           No Default.......................................................................14

i

         SECTION 3.10          Real Property....................................................................15

         SECTION 3.11          Litigation.......................................................................17

         SECTION 3.12          Compliance with Applicable Law; Permits..........................................17

         SECTION 3.13          Employee Plans...................................................................18

         SECTION 3.14          Labor Matters....................................................................20

         SECTION 3.15          Environmental Matters............................................................21

         SECTION 3.16          Tax Matters......................................................................23

         SECTION 3.17          Absence of Questionable Payments.................................................24

         SECTION 3.18          Material Contracts...............................................................25

         SECTION 3.19          Subsidies........................................................................26

         SECTION 3.20          Intellectual Property............................................................26

         SECTION 3.21          Year 2000........................................................................28

         SECTION 3.22          Opinion of Financial Advisor.....................................................29

         SECTION 3.23          Brokers..........................................................................29

         SECTION 3.24          Accounting Matters...............................................................29

         SECTION 3.25          Recalls..........................................................................29

         SECTION 3.26          Takeover Statute.................................................................29

         SECTION 3.27          Company Rights Agreement.........................................................29

Article IV            REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...................................30

         SECTION 4.1           Organization.....................................................................30

         SECTION 4.2           Authority Relative to This Agreement.............................................30

         SECTION 4.3           SEC Reports; Financial Statements................................................31

         SECTION 4.4           Undisclosed Liabilities..........................................................31

         SECTION 4.5           Capitalization of Parent.........................................................32

         SECTION 4.6           Information Supplied.............................................................32

         SECTION 4.7           Consents and Approvals; No Violations............................................32

         SECTION 4.8           No Prior Activities..............................................................33

         SECTION 4.9           Brokers..........................................................................33

         SECTION 4.10          Accounting Matters...............................................................33

Article V             COVENANTS RELATED TO CONDUCT OF BUSINESS..................................................33

         SECTION 5.1           Conduct of Business of the Company...............................................33

ii

         SECTION 5.2           Conduct of Business of Parent....................................................36

         SECTION 5.3           Access to Information............................................................37

Article VI            ADDITIONAL AGREEMENTS.....................................................................37

         SECTION 6.1           Preparation of S-4 and the Proxy Statement.......................................37

         SECTION 6.2           Letter of Accountants............................................................38

         SECTION 6.3           Meeting..........................................................................38

         SECTION 6.4           Reasonable Best Efforts..........................................................38

         SECTION 6.5           Acquisition Proposals............................................................40

         SECTION 6.6           Public Announcements.............................................................41

         SECTION 6.7           Indemnification..................................................................42

         SECTION 6.8           Notification of Certain Matters..................................................43

         SECTION 6.9           Tax-Free Reorganization Treatment................................................43

         SECTION 6.10          Employee Matters.................................................................43

         SECTION 6.11          Company Affiliate Agreements.....................................................44

         SECTION 6.12          SEC and Other Filings............................................................44

         SECTION 6.13          Fees and Expenses................................................................44

         SECTION 6.14          Obligations of Merger Sub........................................................45

         SECTION 6.15          Listing of Stock.................................................................45

         SECTION 6.16          Antitakeover Statutes............................................................45

         SECTION 6.17          Termination of Credit Agreement..................................................45

         SECTION 6.18          Benchmarq........................................................................45

Article VII           CONDITIONS TO CONSUMMATION OF THE MERGER..................................................45

         SECTION 7.1           Conditions to Each Party's Obligations to Effect the Merger......................45

         SECTION 7.2           Conditions to the Obligations of Parent and Merger Sub...........................46

         SECTION 7.3           Conditions to the Obligations of the Company.....................................47

Article VIII          TERMINATION; AMENDMENT; WAIVER............................................................48

         SECTION 8.1           Termination by Mutual Agreement..................................................48

         SECTION 8.2           Termination by Either Parent or the Company......................................48

         SECTION 8.3           Termination by the Company.......................................................49

         SECTION 8.4           Termination by Parent............................................................49

         SECTION 8.5           Effect of Termination and Abandonment............................................50

         SECTION 8.6           Amendment........................................................................51

iii

         SECTION 8.7           Extension; Waiver................................................................51

Article IX            MISCELLANEOUS.............................................................................51

         SECTION 9.1           Entire Agreement; Assignment.....................................................51

         SECTION 9.2           Notices..........................................................................51

         SECTION 9.3           Governing Law....................................................................53

         SECTION 9.4           Descriptive Headings.............................................................53

         SECTION 9.5           Parties in Interest..............................................................53

         SECTION 9.6           Severability.....................................................................53

         SECTION 9.7           Specific Performance.............................................................53

         SECTION 9.8           Counterparts.....................................................................53

         SECTION 9.9           Interpretation...................................................................54

         SECTION 9.10          Definitions......................................................................54

EXHIBITS

Voting Agreement                            A
Company Affiliate Agreement                 B
Option Agreement                            C

iv

GLOSSARY OF DEFINED TERMS
-------------------------
     Defined Terms                                                                      Defined in Section
     -------------                                                                      ------------------
Acquisition Proposal................................................................................6.5(a)
Antitrust Law..........................................................................................3.8
Articles of Merger.....................................................................................1.2
Assumed Stock Option................................................................................2.2(a)
Average Parent Stock Price..........................................................................2.1(b)
beneficial ownership...............................................................................9.10(a)
beneficially own...................................................................................9.10(a)
business day.......................................................................................9.10(b)
Benefit Plans...................................................................................3.13(a)(i)
Certificates...........................................................................................2.4
Closing................................................................................................1.3
Closing Date ..........................................................................................1.3
Code..............................................................................................Recitals
Company...........................................................................................Preamble
Company Affiliate Agreements......................................................................Recitals
Company Balance Sheet..................................................................................3.4
Company Balance Sheet Date.............................................................................3.4
Company Board.......................................................................................3.3(b)
Company Common Stock................................................................................2.1(b)
Company Common Stock Price..........................................................................2.1(b)
Company Disclosure Schedule....................................................................Article III
Company Option Plan.................................................................................2.2(a)
Company Permits.......................................................................................3.12
Company Requisite Vote..............................................................................3.3(b)
Company Rights Agreement..............................................................................3.27
Company SEC Reports....................................................................................3.4
Company Securities..................................................................................3.2(a)
Company Stock Options...............................................................................2.2(a)
Company Stockholder Meeting............................................................................6.3
Confidentiality Agreement...........................................................................5.3(c)
Covered Transactions..................................................................................3.26
Department.............................................................................................1.2
DOJ.................................................................................................6.4(b)
Effective Time.........................................................................................1.2
Employee Arrangements..........................................................................3.13(a)(ii)
Environmental Law...............................................................................3.15(a)(i)
ERISA...........................................................................................3.13(a)(i)
Exchange Act...........................................................................................3.4
Exchange Agent.........................................................................................2.3
Exchange Fund..........................................................................................2.3
Exchange Ratio......................................................................................2.1(b)
Expenses..............................................................................................6.13

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Financial Advisor.....................................................................................3.22
Former Facilities..................................................................................3.10(a)
FTC.................................................................................................6.4(b)
GAAP...................................................................................................3.4
Governmental Entity....................................................................................3.8
Hazardous Material.............................................................................3.15(a)(ii)
HSR Act................................................................................................3.8
Indemnified Party(ies)..............................................................................6.7(a)
Intellectual Property..............................................................................3.20(a)
IRS................................................................................................3.13(b)
know...............................................................................................9.10(c)
knowledge..........................................................................................9.10(c)
Law....................................................................................................3.9
Lien................................................................................................3.2(b)
Material Adverse Effect............................................................................9.10(d)
Material Contracts.................................................................................3.18(a)
Merger.................................................................................................1.1
Merger Sub........................................................................................Preamble
MGCL...................................................................................................1.1
NYSE................................................................................................2.1(b)
Option Agreement..................................................................................Recitals
Parent............................................................................................Preamble
Parent Board........................................................................................4.2(b)
Parent Common Stock...............................................................................Recitals
Parent Disclosure Schedule......................................................................Article IV
Parent SEC Reports.....................................................................................4.3
person ............................................................................................9.10(e)
Product............................................................................................3.25(c)
Proxy Statement........................................................................................3.7
Real Property Leases............................................................................3.10(c)(i)
Recalls............................................................................................3.25(a)
Release.......................................................................................3.15(a)(iii)
Remedial Action................................................................................3.15(a)(iv)
Rights................................................................................................3.27
S-4....................................................................................................3.7
Scheduled Intellectual Property....................................................................3.20(a)
SEC.................................................................................................2.2(a)
Share(s)............................................................................................2.1(b)
Share Consideration.................................................................................2.1(b)
Stock Purchase Plan.................................................................................2.2(c)
subsidiary.........................................................................................9.10(f)
Superior Proposal...................................................................................6.5(a)
Surviving Corporation..................................................................................1.1
Systems............................................................................................3.21(e)
Takeover Statutes.....................................................................................3.26

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Tax(es)............................................................................................3.16(a)
Tax Returns........................................................................................3.16(a)
Termination Date ...................................................................................8.2(a)
Voting Agreements.................................................................................Recitals
WARN...............................................................................................3.14(d)

vii

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of July 25, 1999, is among Unitrode Corporation, a Maryland corporation (the "COMPANY"), Texas Instruments Incorporated, a Delaware corporation ("PARENT"), and Unicorn Acquisition Corp., a Maryland corporation and a direct wholly owned subsidiary of Parent ("MERGER SUB"). Certain capitalized and non-capitalized terms used herein are defined in
Section 9.10.

RECITALS

WHEREAS, the Boards of Directors of the Company, Parent and Merger Sub each have, in light of and subject to the terms and conditions set forth herein, approved this Agreement and the transactions contemplated hereby, including the Merger, and the Boards of Directors of the Company and Merger Sub have declared the Merger advisable on substantially the terms and conditions set forth herein and fair to, and in the best interests of, their respective stockholders;

WHEREAS, pursuant to the Merger, among other things, and subject to the terms and conditions of this Agreement, all of the issued and outstanding shares of stock of the Company shall be converted into the right to receive shares of common stock, par value $1.00 per share, of Parent (together with any associated rights to acquire shares of Cumulative Preferred Stock of Parent pursuant to the Rights Agreement dated as of June 18, 1998, as amended, between Parent and Harris Trust and Savings Bank, as Rights Agent) (collectively, "PARENT COMMON STOCK");

WHEREAS, as an inducement to Parent and Merger Sub to enter into this Agreement, certain stockholders of the Company have concurrently herewith entered into (i) voting agreements in the form attached hereto as EXHIBIT A ("VOTING AGREEMENTS") pursuant to which, among other things, such stockholders have agreed to vote the shares of Company Common Stock (as hereinafter defined) owned by them in favor of the Merger and (ii) Company Affiliate Agreements in the form attached hereto as EXHIBIT B ("COMPANY AFFILIATE AGREEMENTS") pursuant to which, among other things, such stockholders have agreed to refrain from selling shares of Company Common Stock or Parent Common Stock during a specified period prior to and following consummation of the Merger;

WHEREAS, as an inducement to Parent and Merger Sub to enter into this Agreement, the Company has entered into a stock option agreement in the form attached hereto as EXHIBIT C ("OPTION AGREEMENT") pursuant to which the Company has granted to Parent an option to purchase from the Company, upon the terms and conditions described in the Option Agreement, Shares (as hereinafter defined);

WHEREAS, for U.S. federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall be, and is hereby, adopted as a plan of reorganization for purposes of Section 368(a) of the Code;

WHEREAS, for accounting purposes, it is intended that the Merger shall be accounted for as a "pooling of interests"; and


WHEREAS, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with the Merger as set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the Company, Parent and Merger Sub hereby agree as follows:

ARTICLE I
THE MERGER

SECTION 1.1 The Merger. At the Effective Time and upon the terms and subject to the conditions of this Agreement and in accordance with the Maryland General Corporation Law (the "MGCL"), Merger Sub shall be merged with and into the Company (the "MERGER"). Following the Merger, the Company shall continue as the surviving corporation (the "SURVIVING CORPORATION") and the separate corporate existence of Merger Sub shall cease.

SECTION 1.2 Effective Time. Subject to the provisions of this Agreement, Parent, Merger Sub and the Company shall cause the Merger to be consummated by filing appropriate Articles of Merger (the "ARTICLES OF MERGER") for record with the State Department of Assessments and Taxation of Maryland (THE "DEPARTMENT") in such form as required by, and executed in accordance with, the relevant provisions of the MGCL, as soon as practicable on or after the Closing Date (as hereinafter defined). The Merger shall become effective upon acceptance for record of such Articles of Merger by the Department or at such time thereafter (but not exceeding 30 days after such acceptance for record) as is provided in the Articles of Merger (the "EFFECTIVE TIME").

SECTION 1.3 Closing of the Merger. The closing of the Merger (the "CLOSING") will take place at a time and on a date to be specified by the parties (the "CLOSING DATE"), which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), at the offices of Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas 75201, or at such other time, date or place as agreed to in writing by the parties hereto.

SECTION 1.4 Effects of the Merger. The Merger shall have the effects set forth in the MGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all of the properties, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

SECTION 1.5 Charter and Bylaws. Effective immediately following the Merger, the charter of Merger Sub, as in effect immediately prior to the Effective Time, shall be the charter of the Surviving Corporation until amended in accordance with applicable Law (as hereinafter defined). Effective immediately following the Merger, the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until amended in accordance with applicable Law.

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SECTION 1.6 Directors. The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office from the Effective Time in accordance with the charter and bylaws of the Surviving Corporation until their successors are duly elected or appointed and qualified or until their earlier death, resignation or removal.

SECTION 1.7 Officers. The officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office from the Effective Time in accordance with the charter and bylaws of the Surviving Corporation until their successors are duly elected or appointed and qualified or until their earlier death, resignation or removal.

ARTICLE II
CONVERSION OF SECURITIES

SECTION 2.1 Conversion of Shares.

(a) At the Effective Time, each issued and outstanding share of the common stock, par value $.01 per share, of Merger Sub shall, by virtue of the Merger and without any action on the part of Parent, Merger Sub or the Company, be converted into one fully paid and non-assessable share of common stock of the Surviving Corporation.

(b) At the Effective Time, each share of common stock, par value $.01 per share, of the Company, including the associated Rights (as hereinafter defined) ("COMPANY COMMON STOCK"), issued and outstanding immediately prior to the Effective Time (individually, a "SHARE" and collectively, the "SHARES") (other than (i) Shares held by the Company and (ii) Shares held by Parent or Merger Sub) shall, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any holder thereof, be converted into and be exchangeable for the right to receive the number (rounded to the nearest thousandth) of fully paid and non-assessable shares of Parent Common Stock, determined by dividing $38.60 (the "COMPANY COMMON STOCK PRICE") by the Average Parent Stock Price (such quotient being hereinafter referred to as the "EXCHANGE RATIO," and all such shares of Parent Common Stock issued pursuant to this
Section 2.1(b), together with any cash in lieu of fractional shares of Parent Common Stock to be paid pursuant to Section 2.7, being referred to herein as the "SHARE CONSIDERATION"). As used herein, the "AVERAGE PARENT STOCK PRICE" means the average of the daily high and low sales prices, regular way, of one share of Parent Common Stock (rounded to the nearest thousandth) on the New York Stock Exchange ("NYSE") (as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another nationally recognized source) during the 20 consecutive trading day period ending on the second trading day prior to the Effective Time; provided, however, that (i) if the Average Parent Stock Price is less than $133.70 the Average Parent Stock Price for purposes of determining the Exchange Ratio shall be equal to $133.70 (the "MINIMUM AVERAGE PARENT STOCK PRICE"), and (ii) if the Average Parent Stock Price is greater than $153.70, the Average Parent Stock Price for purposes

3

of determining the Exchange Ratio shall be equal to $153.70 (the "MAXIMUM
AVERAGE PARENT STOCK PRICE").

(c) At the Effective Time (i) each Share of Company Common Stock owned by Parent shall be contributed to Merger Sub immediately prior to the Effective Time and (ii) all shares held by Merger Sub, including any shares so contributed, shall become one share of authorized but unissued stock of the Surviving Corporation.

(d) If between the date of this Agreement and the Effective Time Parent changes (or establishes a record date for changing) the outstanding shares of Parent Common Stock into a different number of shares or a different class of shares as a result of any stock dividend, subdivision, reclassification, recapitalization, split (including a reverse split), combination, exchange of shares or extraordinary dividend (in cash or otherwise), or any similar event, then the Minimum Average Parent Stock Price, the Maximum Average Parent Stock Price and the Exchange Ratio and the Average Parent Stock Price shall be appropriately adjusted to the extent necessary to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, extraordinary dividend or such similar event.

SECTION 2.2 Stock Options.

(a) As soon as practicable following the date of this Agreement, Parent and the Company (or, if appropriate, any committee of the Board of Directors of the Company administering the Company's 1999 Equity Incentive Plan (the "COMPANY OPTION PLAN") or any committee of the Board of Directors administering Parent's option plans) or any other Company stock option plans shall take such action as may be required to effect the following provisions of this Section 2.2. As of the Effective Time, each option to purchase shares of Company Common Stock, including all options granted pursuant to the Company Option Plan, the Company's 1983 Stock Option Plan, 1986 Non-Employee Director Option Plan and 1992 Employee Stock Option Plan (each, a "COMPANY STOCK OPTION") which is then outstanding shall be assumed by Parent and converted into an option (or a new substitute option shall be granted) (an "ASSUMED STOCK OPTION") to purchase the number of shares of Parent Common Stock (rounded up to the nearest whole share) equal to
(x) the number of shares subject to such option multiplied by (y) the Exchange Ratio, at an exercise price per share of Parent Common Stock (rounded down to the nearest penny) equal to (A) the former exercise price per share of Company Common Stock under such option immediately prior to the Effective Time divided by (B) the Exchange Ratio; provided, however, that in the case of any Company Stock Option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code, the conversion formula shall be adjusted, if necessary, to comply with Section 424(a) of the Code. Except as provided above, each Assumed Stock Option shall be subject to the same terms and conditions (including expiration date and vesting) as were applicable to such converted Company Stock Option immediately prior to the Effective Time. Parent shall use its reasonable best efforts to promptly prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-8 or other appropriate form with respect to shares of Parent Common Stock subject to the Assumed Stock Options and to maintain the effectiveness of such registration statement or registration statements covering such Assumed Stock Options (and

4

maintain the current status of the prospectus or prospectuses contained therein) for so long as such Assumed Stock Options remain outstanding.

(b) Prior to Closing, the Company shall provide all information reasonably requested by Parent in respect of the Company Stock Options and shall fully cooperate with Parent to effect the transactions contemplated by this
Section 2.2.

(c) No later than July 30, 1999, the Company shall terminate any offerings under its 1999 Employee Stock Purchase Plan (the "STOCK PURCHASE PLAN"), and such plan shall terminate immediately prior to the Effective Time.

(d) As of the Effective Time, any restricted shares of Company Common Stock shall be converted into shares of Parent Common Stock equal to the number of restricted shares of Company Common Stock multiplied by the Exchange Ratio (and rounded up to the nearest whole share), and such shares of Parent Common Stock shall otherwise be subject to the same terms as in effect immediately prior to the Effective Time (including any terms that would result in the restrictions on such shares lapsing as of the Effective Time as disclosed in
Section 3.13(a) of the Company Disclosure Schedule (as hereinafter defined)). As of the Effective Time, any stock appreciation rights ("SAR") with respect to shares of Company Common Stock which are outstanding as of the Effective Time shall be converted into stock appreciation rights with respect to the number of shares of Parent Common Stock equal to: (x) the number of shares subject to such SAR multiplied by (y) the Exchange Ratio, at a strike price per share of Parent Common Stock (rounded down to the nearest penny) equal to (A) the former strike price per share of Company Common Stock under such option immediately prior to the Effective Time divided by (B) the Exchange Ratio.

(e) The Company Option Plan (including all predecessor plans) and all Company Stock Options shall terminate (other than with respect to the right to receive the consideration specified in this Section 2.2) at and as of the Effective Time. The provisions in any other plan, program or arrangement providing for the issuance or grant of any Company Stock Options or similar instruments shall be canceled at and as of the Effective Time (subject only to the rights to receive the consideration, if any, specified in this Section 2.2). The Company shall take all action necessary to ensure that following the Effective Time no participant in the Company Option Plan, the Stock Purchase Plan or other plans, programs or arrangements shall have any right thereunder to acquire equity securities of the Company, the Surviving Corporation or any subsidiary thereof and to terminate all such plans, programs and arrangements.

SECTION 2.3 Exchange Fund. Prior to the Effective Time, Parent shall appoint a commercial bank or trust company reasonably acceptable to the Company to act as exchange agent hereunder for the purpose of exchanging Shares for the Share Consideration (the "EXCHANGE AGENT"). At or prior to the Effective Time, Parent shall deposit with the Exchange Agent, in trust for the benefit of holders of Shares, certificates representing the Parent Common Stock issuable pursuant to Section 2.1 in exchange for outstanding Shares. Parent agrees to make available to the Exchange Agent from time to time as needed, sufficient cash amounts payable in lieu of fractional shares of Parent Common Stock pursuant to Section 2.7 and any dividends and other distributions payable pursuant to Section 2.5. Any cash and certificates of

5

Parent Common Stock, together with any dividends or distributions with respect thereto, deposited with the Exchange Agent shall hereinafter be referred to as the "EXCHANGE FUND."

SECTION 2.4 Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail to each holder of a certificate or certificates which immediately prior to the Effective Time represented outstanding Shares (the "CERTIFICATES") whose shares were converted pursuant to Section 2.1(b) into Parent Common Stock
(i) a letter of transmittal which shall specify that delivery shall be effective, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent, and which letter shall be in customary form and have such other provisions as Parent and the Company may reasonably specify; and (ii) instructions for effecting the surrender of such Certificates in exchange for the Share Consideration. Upon surrender of a Certificate to the Exchange Agent together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor (A) a certificate or certificates representing that number of shares of Parent Common Stock representing, in the aggregate, the whole number of shares that such holder has the right to receive pursuant to Section 2.1 and (B) a check in the amount equal to the cash that such holder has the right to receive pursuant to the provisions of this Article II, including cash in lieu of any dividends and other distributions made in accordance with Section 2.5 and cash in lieu of fractional shares pursuant to Section 2.7 and the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or will accrue on any cash payable pursuant to Section 2.5 or Section 2.7. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, certificates evidencing, in the aggregate, the proper number of shares of Parent Common Stock, a check in the proper amount of cash in lieu of any fractional shares of Parent Common Stock pursuant to Section 2.7 and any dividends or other distributions to which such holder is entitled pursuant to Section 2.5, may be issued with respect to such Shares to such a transferee if the Certificate representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer Taxes have been paid.

SECTION 2.5 Distributions with Respect to Unsurrendered Certificates. No dividends or other distributions declared or made with respect to shares of Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock that such holder would be entitled to receive upon surrender of such Certificate and no cash payment in lieu of fractional shares of Parent Common Stock shall be paid to any such holder pursuant to Section 2.7 until such holder shall surrender such Certificate in accordance with Section 2.4. Subject to the effect of applicable Laws, following surrender of any such Certificate, there shall be paid to such holder of shares of Parent Common Stock issuable in exchange therefor, without interest, (a) promptly after the time of such surrender, the amount of any cash payable in lieu of fractional shares of Parent Common Stock to which such holder is entitled pursuant to Section 2.7 and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock, and (b) at the appropriate payment date,

6

the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such shares of Parent Common Stock.

SECTION 2.6 No Further Ownership Rights in Company Common Stock. All shares of Parent Common Stock issued and cash paid upon conversion of the Shares in accordance with the terms of Article I and this Article II (including any cash paid pursuant to Sections 2.5 and 2.7) shall be deemed to have been issued or paid in full satisfaction of all rights under the MGCL pertaining to the Shares.

SECTION 2.7 No Fractional Shares of Parent Common Stock.

(a) No certificates or scrip of shares of Parent Common Stock representing fractional shares of Parent Common Stock or book-entry credit of the same shall be issued upon the surrender for exchange of Certificates and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a stockholder of Parent or a holder of shares of Parent Common Stock.

(b) Notwithstanding any other provision of this Agreement, each holder of Shares exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Parent Common Stock (after taking into account all Certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Parent Common Stock multiplied by (ii) the closing price on the NYSE (as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another nationally recognized source) for a share of Parent Common Stock on the date of the Effective Time. As promptly as practicable after the determination of the aggregate amount of cash to be paid to holders of fractional interests, the Exchange Agent shall notify Parent and Parent shall cause the Surviving Corporation to deposit such amount with the Exchange Agent and shall cause the Exchange Agent to forward payments to such holders of fractional interests subject to and in accordance with the terms hereof.

SECTION 2.8 Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of Certificates for twelve months after the Effective Time shall be delivered to the Surviving Corporation or otherwise on the instruction of the Surviving Corporation, and any holders of the Certificates who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation and Parent for the Share Consideration with respect to the Shares formerly represented thereby to which such holders are entitled pursuant to Section 2.1 and Section 2.4, any cash in lieu of fractional shares of Parent Common Stock to which such holders are entitled pursuant to Section 2.7 and any dividends or distributions with respect to shares of parent Common Stock to which such holders are entitled pursuant to
Section 2.5.

SECTION 2.9 No Liability. None of Parent, Merger Sub, the Company, the Surviving Corporation or the Exchange Agent, or any directors, officers, employees or agents of each of the foregoing shall be liable to any person in respect of any Parent Common Stock, any dividends or distributions with respect thereto, any cash in lieu of fractional shares of Parent

7

Common Stock or any cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

SECTION 2.10 Investment of the Exchange Fund. The Exchange Agent shall invest any cash included in the Exchange Fund as directed by Parent on a daily basis. Any interest and other income resulting from such investments promptly shall be paid to Parent.

SECTION 2.11 Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will deliver in exchange for such lost, stolen or destroyed Certificate the applicable Share Consideration with respect to the Shares formerly represented thereby, any cash in lieu of fractional shares of Parent Common Stock and unpaid dividends and distributions on shares of Parent Common Stock deliverable in respect thereof, pursuant to this Agreement.

SECTION 2.12 Withholding Rights. Each of the Surviving Corporation and Parent shall be entitled to deduct and withhold from the Share Consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any applicable Law. To the extent that amounts are so withheld by the Surviving Corporation or Parent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect to which such deduction and withholding was made by the Surviving Corporation or Parent, as the case may be.

SECTION 2.13 Stock Transfer Books. The stock transfer books of the Company shall be closed immediately upon the Effective Time and there shall be no further registration of transfers of Shares thereafter on the records of the Company. On or after the Effective Time, any Certificates presented to the Exchange Agent or Parent for any reason shall be converted into the Share Consideration with respect to the Shares formerly represented thereby, any cash in lieu of fractional shares of Parent Common Stock to which the holders thereof are entitled pursuant to Section 2.7 and any dividends or other distributions to which the holders thereof are entitled pursuant to Section 2.5 and the Certificates so presented shall be cancelled.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the disclosure schedule delivered by the Company to Parent prior to the execution of this Agreement (the "COMPANY DISCLOSURE SCHEDULE") (each section of which qualifies the correspondingly numbered representation and warranty or covenant to the extent specified therein), the Company hereby represents and warrants to each of Parent and Merger Sub as follows:

8

SECTION 3.1 Organization and Qualification; Subsidiaries.

(a) The Company and each of its subsidiaries is a corporation or legal entity duly organized, validly existing and in good standing under the applicable Laws of the jurisdiction of its incorporation or organization and has all requisite corporate, partnership or similar power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted.

(b) Section 3.1 of the Company Disclosure Schedule sets forth a list of all subsidiaries of the Company. Except as listed in Section 3.1 of the Company Disclosure Schedule, the Company does not own, directly or indirectly, beneficially or of record, any shares of capital stock or other securities of any other entity or any other investment in any other entity.

(c) Each of the Company and its subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased, or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing is not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

(d) The Company has heretofore delivered to Parent accurate and complete copies of the charter or articles or certificate of incorporation and bylaws (or other similar organizational and governing documents), as currently in effect, of the Company and each of its subsidiaries.

SECTION 3.2 Capitalization of the Company and Its Subsidiaries.

(a) The authorized stock of the Company consists of: (i) 60,000,000 shares of Company Common Stock, of which 32,516,383 shares were issued and outstanding as of July 13, 1999, and (ii) 1,000,000 shares of Preferred Stock, par value $.01 per share, of which 300,000 shares are designated as Series A Junior Participating Preferred Stock, no shares of which are outstanding. All of the issued and outstanding Shares have been validly issued, and are duly authorized, fully paid, non-assessable and free of preemptive rights. As of the date hereof, 6,260,252 Shares are reserved for issuance and issuable upon or otherwise deliverable in connection with the exercise of outstanding Company Stock Options. Except as set forth above and except for the Option Agreement and the Company Rights Agreement (as hereinafter defined), as of the date hereof, there are outstanding (i) no shares of stock or other voting securities of the Company; (ii) no securities of the Company or any of its subsidiaries convertible into or exchangeable for shares of stock or voting securities of the Company; (iii) no options or other rights to acquire from the Company or any of its subsidiaries, and no obligations of the Company or any of its subsidiaries to issue, any stock, voting securities, or securities convertible into or exchangeable for stock or voting securities of the Company; and (iv) no equity equivalents, interests in the ownership or earnings of the Company, or other similar rights (including stock appreciation rights) (collectively, "COMPANY SECURITIES"). Except for the Option Agreement, there are no outstanding obligations of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. There are no stockholder agreements, voting trusts or other agreements or understandings to which the

9

Company or any of its subsidiaries is a party or to which it is bound relating to the voting of any shares of capital stock of the Company (other than the Voting Agreement). Section 3.2 of the Company Disclosure Schedule sets forth information regarding the current exercise price, the date of grant, and the number of Company Stock Options granted for each holder thereof.

(b) All of the outstanding capital stock of the Company's subsidiaries is owned by the Company, directly or indirectly, free and clear of any Lien or any other limitation or restriction (including, any restriction on the right to vote or sell the same) except as may be provided as a matter of Law. There are no securities of the Company or its subsidiaries convertible into or exchangeable for, no options or other rights to acquire from the Company or its subsidiaries, and no other contract, understanding, arrangement, or obligation (whether or not contingent) providing for the issuance or sale, directly or indirectly of, any capital stock or other ownership interests in, or any other securities of, any subsidiary of the Company. There are no outstanding contractual obligations of the Company or its subsidiaries to repurchase, redeem, or otherwise acquire any outstanding shares of capital stock or other ownership interests in any subsidiary of the Company. For purposes of this Agreement, "LIEN" means, in respect of any asset (including any security) any mortgage, lien, pledge, charge, security interest, or encumbrance of any kind in respect of such asset.

SECTION 3.3 Authority Relative to This Agreement.

(a) The Company has all necessary corporate power and authority to execute and deliver this Agreement and the Option Agreement and to consummate the transactions contemplated hereby. No other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby and thereby (other than, in respect of the Merger and this Agreement, the Company Requisite Vote (as hereinafter defined)). This Agreement and the Option Agreement have been duly and validly executed and delivered by the Company and constitute valid, legal, and binding agreements of the Company, enforceable against the Company in accordance with their respective terms.

(b) As of the date hereof, the Board of Directors of the Company (the "COMPANY BOARD") has, by unanimous vote of those present (who constituted 100% of the directors then in office), duly and validly authorized the execution and delivery of this Agreement and the Option Agreement and approved the consummation of the transactions contemplated hereby and thereby, taken all corporate actions required to be taken by the Company Board for the consummation of the transactions, including the Merger, contemplated hereby and has resolved
(i) this Agreement and the transactions contemplated hereby, including the Merger, taken together, to be advisable and fair to, and in the best interests of, the Company and its stockholders; and (ii) to recommend that the stockholders of the Company approve and adopt the Merger on substantially the terms and conditions set forth in this Agreement. The Company Board has directed that the Merger on substantially the terms and conditions set forth in this Agreement be submitted to the stockholders of the Company for their approval. The affirmative approval of the holders of Shares representing 66 2/3% of the votes that may be cast by the holders of all outstanding Shares (voting as a single class) as of the record date for the Company (the "COMPANY REQUISITE Vote"), are the only votes of the holders of any class or series of

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stock of the Company necessary to approve the Merger on substantially the terms and conditions set forth in this Agreement.

SECTION 3.4 SEC Reports; Financial Statements. The Company has filed all required forms, reports and documents with SEC since February 1, 1997, each of which complied in all material respects with all applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), each as in effect on the dates such forms, reports, and documents were filed. The Company has heretofore delivered or made available to Parent, in the form filed with the SEC (including, any amendments thereto), (i) its Annual Report on Form 10-K for each of the fiscal years ended January 31, 1997, 1998 and 1999; (ii) all definitive proxy statements relating to the Company's meetings of stockholders (whether annual or special) held since February 1, 1997; and (iii) all other reports (including, all Forms 10-Q filed since February 1, 1997) or registration statements filed by the Company with the SEC since February 1, 1997 (the "COMPANY SEC REPORTS"). None of the Company SEC Reports contained, when filed, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company included in the Company SEC Reports complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC in respect thereof and fairly presented, in conformity with generally accepted accounting principles applied on a consistent basis ("GAAP") (except as may be indicated in the notes thereto), the consolidated financial position of the Company and its consolidated subsidiaries, in each case as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments). For purposes of this Agreement, "COMPANY BALANCE SHEET" means the consolidated balance sheet of the Company as of May 1, 1999, as set forth in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 1999, and "COMPANY BALANCE SHEET DATE" means May 1, 1999. Since May 1, 1999, there has not been any change, or any application or request for any change, by the Company or any of its subsidiaries in accounting principles, methods or policies for financial accounting or Tax purposes (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments).

SECTION 3.5 No Undisclosed Liabilities. There are no liabilities of the Company or any of its subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise which are required to be reflected in its financial statements (or in the notes thereto) in accordance with GAAP, other than: (a) liabilities disclosed, provided for or reserved against in the Company Balance Sheet or in the notes thereto; (b) liabilities arising in the ordinary course of business after the date of the Company Balance Sheet; (c) liabilities disclosed in the Company SEC Reports prior to the date hereof; and (d) liabilities under this Agreement.

SECTION 3.6 Absence of Changes. Except as contemplated by this Agreement and except as and to the extent publicly disclosed in the Company SEC Reports prior to the date hereof, since the Company Balance Sheet Date, the Company and its subsidiaries have

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conducted their business in the ordinary and usual course consistent with past practice and there has not been:

(a) any event, occurrence or development which is reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its subsidiaries taken as a whole;

(b) any declaration, setting aside or payment of any dividend or other distribution in respect of any shares of stock of the Company or any subsidiary, or any repurchase, redemption or other acquisition by the Company or any of its subsidiaries of any Company or subsidiary securities;

(c) any amendment of any term of any outstanding security of the Company or any of its subsidiaries that would materially increase the obligations of the Company or any such subsidiary under such security;

(d) (i) any incurrence or assumption by the Company or any subsidiary of any indebtedness for borrowed money other than under existing credit facilities (or any renewals, replacements or extensions that do not increase the aggregate commitments thereunder) except (A) in the ordinary and usual course of business consistent with past practice or (B) in connection with any acquisition or capital expenditure permitted by Section 5.1, or (ii) any guarantee, endorsement, or other incurrence or assumption of liability (whether directly, contingently or otherwise) by the Company or any of its subsidiaries for the obligations of any other person (other than any wholly owned subsidiary of the Company), other than in the ordinary and usual course of business consistent with past practice;

(e) any creation or assumption by the Company or any of its subsidiaries of any Lien on any material asset of the Company or any of its subsidiaries other than in the ordinary and usual course of business consistent with past practice;

(f) any making of any loan, advance or capital contribution to or investment in any person by the Company or any of its subsidiaries other than (i) any acquisition permitted by Section 5.1, (ii) loans, advances or capital contributions to or investments in wholly owned subsidiaries of the Company, (iii) loans or advances to employees of the Company or any of its subsidiaries or (iv) extensions of credit to customers in the ordinary course of business consistent with past practice;

(g) (i) any contract or agreement entered into by the Company or any of its subsidiaries on or prior to the date hereof relating to any material acquisition or disposition of any assets or business, other than contracts or agreements in the ordinary and usual course of business consistent with past practice and those contemplated by this Agreement or (ii) any modification, amendment, assignment, termination or relinquishment by the Company or any of its subsidiaries of any contract, license or other right (including any insurance policy naming it as a beneficiary or a loss payable payee)

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that is reasonably expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole;

(h) any material change in any method of accounting or accounting principles or practice by the Company or any of its subsidiaries, except for any such change required by reason of a change in GAAP;

(i) any (i) grant of any severance or termination pay to any director, officer or employee of the Company or any of its subsidiaries; (ii) entering into of any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Company or any of its subsidiaries;
(iii) increase in benefits payable under any existing severance or termination pay policies or employment agreements; or (iv) increase in compensation, bonus or other benefits payable to directors, officers or employees of the Company or any of its subsidiaries other than, in the case of clause (iv) only, increases prior to the date hereof in compensation, bonus or other benefits payable to employees of the Company or any of its subsidiaries in the ordinary and usual course of business consistent with past practice or merit increases in salaries of employees at regularly scheduled times in customary amounts consistent with past practices;

(j) any change or amendment of the contracts, salaries, wages or other compensation of any officer, director, employee, agent or other similar representative of the Company or any of its subsidiaries whose annual compensation exceeds $100,000 other than changes or amendments that do not and will not result in increases of more than five percent in the salary, wages or other compensation of any such person;

(k) any adoption, entering into, amendment, alteration or termination of (partially or completely) any Benefit Plan or Employee Arrangement except as contemplated by this Agreement or to the extent required by applicable Law or GAAP;

(l) any entering into of any contract with an officer, director, employee, agent or other similar representative of the Company or any of its subsidiaries that is not terminable, without penalty or other liability, upon not more than 60 calendar days' notice; or

(m) any (i) making or revoking of any material election relating to Taxes, (ii) settlement or compromise of any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, or (iii) change to any material methods of reporting income or deductions for federal income tax purposes.

SECTION 3.7 Information Supplied. None of the information supplied or to be supplied by the Company specifically for inclusion or incorporation by reference in (i) the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance of Parent Common Stock as required by the terms of this Agreement pursuant to the Merger (the "S-4"), at the time the S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, will contain any untrue statement of a material fact or omit to state any

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material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the proxy statement relating to the Company Stockholder Meeting to be held in connection with the Merger (the "PROXY STATEMENT") will, at the date mailed to stockholders and at the time of the Company Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event in respect of the Company, its officers and directors or any of its subsidiaries should occur which is required to be described in an amendment of, or a supplement to, the S-4 or the Proxy Statement, the Company shall promptly so advise Parent and such event shall be so described, and such amendment or supplement (which Parent shall have a reasonable opportunity to review) shall be promptly filed with the SEC and, as required by Law, disseminated to the stockholders of the Company. The Proxy Statement, insofar as it relates to the Company Stockholder Meeting, will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. No representation is made under this Section 3.7 with respect to any statements made or incorporated by reference in the S-4 or the Proxy Statement based on information supplied by Parent specifically for inclusion or incorporation by reference therein.

SECTION 3.8 Consents and Approvals. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act, state securities or blue sky Laws, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), or other Antitrust Law, the filing and acceptance for record of the Articles of Merger as required by the MGCL, and such other filings, permits, authorizations, consents and approvals which, if not obtained or made, are not reasonably expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole, no filing with or notice to, and no permit, authorization, consent or approval of, any court or tribunal or administrative, governmental or regulatory body, agency or authority, whether domestic or foreign (a "GOVERNMENTAL ENTITY") is necessary for the execution and delivery by the Company of this Agreement or the Option Agreement or the consummation by the Company of the transactions contemplated hereby or thereby. For purposes of this Agreement, "ANTITRUST LAW" means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition through merger or acquisition.

SECTION 3.9 No Default. Neither the Company nor any of its subsidiaries is in violation of any term of (i) its charter, certificate or articles of incorporation or bylaws (or other similar organizational or governing documents), (ii) any agreement or instrument related to indebtedness for borrowed money or any other agreement to which it is a party or by which it is bound, or (iii) any domestic or foreign law, order, writ, injunction, decree, ordinance, award, stipulation, statute, judicial or administrative doctrine, rule or regulation entered by a Governmental Entity ("LAW") applicable to the Company, its subsidiaries or any of their respective assets or properties, the consequence of which violation is reasonably expected to (A) have, individually or in the aggregate, a Material Adverse Effect on the Company and its subsidiaries taken as a whole or (B) prevent or materially delay the performance of this

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Agreement by the Company. The execution, delivery and performance of this Agreement and the Option Agreement and the consummation of the transactions contemplated hereby and thereby will not (A) result in any violation of or conflict with, constitute a default under (with or without due notice or lapse of time or both), require any consent, waiver or notice under any term of, or result in the reduction or loss of any benefit or the creation or acceleration of any right or obligation (including any termination rights) under, (i) the charter, certificate of incorporation or bylaws (or other similar organizational or governing documents) of the Company or any of its subsidiaries, (ii) any agreement, note, bond, mortgage, indenture, contract, lease, Company Permit or other obligation or right to which the Company or any of its subsidiaries is a party or by which any of the assets or properties of the Company or any of its subsidiaries is bound, or (iii) any applicable Law, except in the case of clause
(ii) and (iii) where any of the foregoing is not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its subsidiaries taken as a whole, or (B) result in the creation of (or impose any obligation on the Company or any of its subsidiaries to create) any Lien upon any of the material assets or properties of the Company or any of its subsidiaries pursuant to any such term.

SECTION 3.10 Real Property.

(a) Except as otherwise set forth on the Company Balance Sheet or in the Company SEC Reports, Section 3.10 of the Company Disclosure Schedule identifies the address, general use of, and period of ownership or occupancy of each of the Company's OWNED FACILITIES, defined as all of the real property owned in fee as of the date hereof by the Company and its subsidiaries, and the Company's LEASED FACILITIES, defined as all of the real property the Company and its subsidiaries use or occupy or have the right to use or occupy, now or in the future, pursuant to any lease, sublease, or other occupancy agreement. No real property is owned, leased or used by the Company or its current subsidiaries in the course of their respective businesses other than the Owned Facilities and Leased Facilities.

(b) With respect to each Owned Facility and except as set forth on the Company Balance Sheet or in the SEC Reports:

(i) the Company or its subsidiary has good and marketable title to Owned Facilities free and clear of all Liens, except (x) Taxes and general and special assessments not in default and payable without penalty and interest, and (y) easements, covenants and other restrictions or imperfections of title that do not materially impair the current use, occupancy, or value, or the marketability of title of such Owned Facilities;

(ii) to the Company's knowledge, there are no pending or threatened condemnation proceedings, lawsuits or administrative actions relating to any Owned Facility that would materially and adversely affect the current use, occupancy or value thereof;

(iii) there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party or parties the right of use or occupancy of any portion of any Owned Facility;

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(iv) there are no outstanding options or rights of first refusal to purchase any Owned Facility, or any portion thereof or interest therein;

(v) there are no parties (other than the Company or its subsidiaries) in possession of any Owned Facility, other than tenants under any leases disclosed in Section 3.10 of the Company Disclosure Schedule who are in possession of space to which they are entitled;

(vi) all facilities located on Owned Facilities are now, and will be at the time of Closing, in good operating condition and repair, and structurally sound and free of known defects, with no material alterations or repairs required thereto (other than ordinary and routine maintenance and repairs) under applicable Laws, Company Permits or insurance company requirements. All such Owned Facilities have been operated and maintained in all material respects in accordance with applicable Laws and Company Permits. All such Owned Facilities are supplied with utilities and other services, including gas, electricity, water, telephone, sanitary sewer and storm sewer, all of which services are adequate for the uses to which such Owned Facility is being put.

(c) With respect to each Leased Facility and except as set forth on the Company Balance Sheet or in the SEC Reports:

(i) the Company has made available to Parent a true, correct, and complete copy of the lease, sublease or other occupancy agreement for such Leased Facility (and all modifications, amendments, and supplements thereto and all side letters to which Company or any of its subsidiaries is a party affecting the obligations of any party thereunder) (each such agreement is referred to herein as a "REAL PROPERTY LEASE");

(ii) to the Company's knowledge, the Company or its subsidiary has a good and valid leasehold interest in such Leased Facilities, where the Company or its subsidiaries own fee title to the improvements thereof, free and clear of all Liens, except (x) Taxes and general and special assessments not in default and payable without penalty and interest, and (y) easements, covenants and other restrictions that do not materially impair the current use, occupancy or value, or the marketability of the Company's or its subsidiary's interest in such real property;

(iii) each Real Property Lease constitutes the valid and legally binding obligation of the parties thereto, enforceable in accordance with its terms, and is in full force and effect;

(iv) all rent and other sums and charges payable by the Company or its subsidiary as tenant under the Real Property Lease covering the Leased Facility are current, no termination event or condition or uncured default on the part of the tenant or, to the Company's knowledge, the landlord, exists under any Real Property Lease. No party to such Real Property Lease has given written notice to the Company or its

16

subsidiary or made a claim in writing against the Company or its subsidiary in respect of any breach or default thereunder;

(v) neither the Company nor its subsidiary has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered its leasehold interest in the Leased Facility; and

(vi) the Company's leased facilities located in Singapore are now, and will be at the time of Closing, in good operating condition and repair, and structurally sound and free of known defects, with no material alterations or repairs required thereto (other than ordinary and routine maintenance and repairs) under applicable Laws, Company Permits or insurance company requirements. All such Singapore leased facilities have been operated and maintained in all material respects in accordance with applicable Laws and Company Permits. All such facilities are supplied with utilities and other services, including gas, electricity, water, telephone, sanitary sewer, and storm sewer, all of which services are adequate for the uses to which such facilities are being put.

SECTION 3.11 Litigation. Set forth in Section 3.11 of the Company Disclosure Schedule is (i) a list, as of the date hereof, of each suit, claim, action, proceeding or, to the Company's knowledge, investigation pending or, to the Company's knowledge, threatened against the Company or any of its subsidiaries or any of their respective assets or properties and (ii) a list of each such suit, claim, action, proceeding or, to the Company's knowledge, investigation, settled or otherwise resolved since July 31, 1997. Except as disclosed in the Company Disclosure Schedule pursuant to clause (i) of the preceding sentence, there is no other suit, claim, action, proceeding or, to the Company's knowledge, investigation, pending or, to the Company's knowledge, threatened which is reasonably expected to have, individually and in the aggregate, a Material Adverse Effect on the Company and its subsidiaries taken as a whole. Except as disclosed in Section 3.11 of the Company Disclosure Schedule, none of the Company or its subsidiaries is subject to any outstanding order, writ, injunction or decree which is reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its subsidiaries taken as a whole. To the Company's knowledge, there is no action, suit, proceeding or investigation pending or threatened against any current or former officer, director, employee or agent of the Company or any of its subsidiaries (in his or her capacity as such) which is reasonably expected to give rise to a claim for contribution or indemnification against the Company or any of its subsidiaries. Notwithstanding the foregoing, any shareholder litigation or litigation by any Governmental Entity, in each case brought or threatened against the Company or any officer, director, employee or agent of the Company in respect of this Agreement or the transactions contemplated hereby shall not be deemed to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

SECTION 3.12 Compliance with Applicable Law; Permits. The Company and its subsidiaries hold all permits, licenses, variances, exemptions, orders, and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "COMPANY PERMITS"), except for failures to hold such permits, licenses, variances, exemptions, orders and approvals which are not reasonably expected to have, individually or in the aggregate,

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a Material Adverse Effect on the Company and its subsidiaries taken as a whole. The Company and its subsidiaries are in compliance with the terms of the Company Permits, except where the failure to comply is not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its subsidiaries taken as a whole. The businesses and operations of the Company and its subsidiaries comply in all respects with all Laws applicable to the Company or its subsidiaries, except where the failure to so comply is not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its subsidiaries taken as a whole. To the Company's knowledge, no investigation or review by any Governmental Entity in respect of the Company or its subsidiaries is pending or threatened, nor, to the Company's knowledge, has any Governmental Entity indicated an intention to conduct the same; provided that for purposes of this Section 3.12 any such investigation or review arising after the date hereof shall not be deemed to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole if and to the extent such investigation or review (or any relevant part thereof) is based on this Agreement or the transactions contemplated hereby.

SECTION 3.13 Employee Plans.

Section 3.13(a) of the Company Disclosure Schedule sets forth a true, correct, and complete list of:

(i) all "employee benefit plans," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which the Company or any of its subsidiaries has any obligation or liability, contingent or otherwise (the "BENEFIT PLANS"); and

(ii) all employment, consulting, termination, severance, change of control, individual compensation or indemnification agreements, and all bonus or other incentive compensation, deferred compensation, salary continuation, disability, severance, stock award, stock option, stock purchase, educational assistance, legal assistance, club membership, employee discount, employee loan, credit union or vacation agreements, policies or arrangements under which the Company or any of its subsidiaries has any obligation or liability (contingent or otherwise) (the "EMPLOYEE ARRANGEMENTS").

(b) In respect of each Benefit Plan and Employee Arrangement, a complete and correct copy of each of the following documents (if applicable) has been provided to Parent, except in the case of foreign Benefit Plans and foreign Employee Arrangements (which shall be provided as soon as practicable after the date hereof, but in no event later than ten days after the date hereof): (i) the most recent plan and related trust documents, and all amendments thereto; (ii) the most recent summary plan description, and all related summaries of material modifications thereto; (iii) the most recent Form 5500 (including, schedules and attachments); (iv) the most recent Internal Revenue Service ("IRS") determination letter; (v) the forms of stock option grant agreements used to make grants under the Company Option Plans; (vi) each written employment, consulting or individual severance or other compensation agreement, and all amendments thereto; and (vii) the most recent actuarial reports (including for purposes of Financial Accounting Standards Board report nos. 87, 106 and 112). The Company has provided

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to Parent a true, correct and complete summary of the employee payroll deduction elections in effect as of the date hereof in respect of its stock purchase plans, together with the term of the current offering period and applicable purchase price at the beginning of such period.

(c) None of the Benefit Plans or Employee Arrangements is subject to Title IV of ERISA, constitutes a defined benefit retirement plan or is a multi-employer plan described in Section 3(37) of ERISA, and the Company and its subsidiaries do not have any obligation or liability (contingent or otherwise) in respect of any such plans. The Company and its subsidiaries are not members of a group of trades or businesses (other than that consisting of the Company and its subsidiaries) under common control or treated as a single employer pursuant to Section 414 of the Code.

(d) The Benefit Plans and their related trusts intended to qualify under Sections 401 and 501(a) of the Code, respectively, so qualify. Any voluntary employee benefit association which provides benefits to current or former employees of the Company and its subsidiaries, or their beneficiaries, is and has been qualified under Section 501(c)(9) of the Code.

(e) All contributions or other payments required to have been made by the Company and its subsidiaries to or under any Benefit Plan or Employee Arrangement by applicable Law or the terms of such Benefit Plan or Employee Arrangement (or any agreement relating thereto) have been timely and properly made.

(f) The Benefit Plans and Employee Arrangements have been maintained and administered in all material respects in accordance with their terms and applicable Laws. In particular, no individual who has performed services for the Company or any of its subsidiaries has been improperly excluded from participation in any Benefit Plan or Employee Arrangement.

(g) There are no pending or, to the Company's knowledge, threatened actions, claims, or proceedings against or relating to any Benefit Plan or Employee Arrangement (other than routine benefit claims by persons entitled to benefits thereunder), and, to the knowledge of the Company, there are no facts or circumstances which could form a reasonable basis for any of the foregoing.

(h) The Company and its subsidiaries do not have any obligation or liability (contingent or otherwise) to provide post-retirement life insurance or health benefits coverage for current or former officers, directors, or employees of the Company or any of its subsidiaries except (i) as may be required under Part 6 of Title I of ERISA at the sole expense of the participant or the participant's beneficiary, (ii) a medical expense reimbursement account plan pursuant to Section 125 of the Code, or (iii) through the last day of the calendar month in which the participant terminates employment with the Company or any subsidiary of the Company.

(i) None of the assets of any Benefit Plan is stock of the Company or any of its affiliates, or property leased to or jointly owned by the Company or any of its affiliates.

(j) Except as disclosed in Section 3.13(j) of the Company Disclosure Schedule or in connection with equity compensation, neither the execution and delivery of this Agreement nor

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the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any employee (current, former, or retired) of the Company or any of its subsidiaries, (ii) increase any benefits under any Benefit Plan or Employee Arrangement, or (iii) result in the acceleration of the time of payment of, vesting of, or other rights in respect of any such benefits.

(k) Each of the Benefit Plans covering employees outside of the United States is fully funded through adequate reserves on financial statements of the Company or its subsidiaries, insurance contracts, annuity contracts, trust funds or similar arrangements, except where any failure to be so funded, either individually or in the aggregate, does not exceed $2,500,000. The benefits and compensation under the Benefit Plans and Employee Arrangements covering employees outside of the United States are no more than customary and reasonable for the country in which such employees work and the industry in which the Company and its subsidiaries conduct their business.

(l) No employee of the Company or its subsidiaries has any outstanding option under the Company's 1999 Employee Stock Purchase Plan to purchase stock.

SECTION 3.14 Labor Matters.

(a) The Company and its subsidiaries are not a party to any labor or collective bargaining agreement, and no employees of the Company or any of its subsidiaries are represented by any labor organization. Within the preceding three years, there have been no representation or certification proceedings, or petitions seeking a representation proceeding, pending or, to the Company's knowledge, threatened in writing to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority. Within the preceding three years, to the Company's knowledge, there have been no organizing activities involving the Company or any of its subsidiaries in respect of any group of employees of the Company or any of its subsidiaries.

(b) There are no strikes, work stoppages, slowdowns, lockouts, material arbitrations or material grievances or other material labor disputes pending or threatened in writing against or involving the Company or any of its subsidiaries. There are no unfair labor practice charges, grievances or complaints pending or, to the Company's knowledge, threatened in writing by or on behalf of any employee or group of employees of the Company or any of its subsidiaries which, if individually or collectively resolved against the Company or any of its subsidiaries, would reasonably be expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole, and, to the knowledge of the Company, there are no facts or circumstances which could form a reasonable basis for any of the foregoing.

(c) There are no complaints, charges or claims against the Company or any of its subsidiaries pending or, to the Company's knowledge, threatened to be brought or filed with any Governmental Entity or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by the Company or any of its subsidiaries which, if individually or collectively resolved against the Company or any of its subsidiaries, would reasonably be expected to have a Material Adverse Effect on the

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Company and its subsidiaries taken as a whole, and, to the knowledge of the Company, there are no facts or circumstances which could form a reasonable basis for any of the foregoing.

(d) There has been no "mass layoff" or "plant closing" as defined by the Worker Adjustment and Retraining Notification Act, as amended ("WARN") in respect of the Company or any of its subsidiaries within the six months prior to the Effective Time.

(e) All employees of the Company and its subsidiaries possess all applicable passports, visas, permits and other authorizations required by all applicable immigration or similar Laws to be employed by and to perform services for and on behalf of the Company and its subsidiaries. The Company and its subsidiaries, and their employees, have complied in all material respects with all applicable immigration and similar Laws.

SECTION 3.15 Environmental Matters.

(a) For purposes of this Agreement:

(i) "ENVIRONMENTAL LAW" means all federal, state, local or foreign Law, or other legal requirement regulating or prohibiting Releases of Hazardous Materials into the indoor or outdoor environment, or pertaining to the protection of natural resources or wildlife, the environment or public and employee health and safety or pollution or the exposure to Hazardous Materials, including the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 7401 et seq.), the Atomic Energy Act (42 U.S.C. Section 2014 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Communications Act (47 U.S.C.
Section 151 et seq.), and the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) ("OSHA"), as such laws or other legal requirements have been and may be amended or supplemented through the Closing Date;

(ii) "HAZARDOUS MATERIAL" means any substance, material or waste which is regulated pursuant to any applicable Environmental Law as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "contaminant," "toxic waste," "toxic substance," "source material," "special nuclear material," "byproduct material," "high-level radioactive waste," "low-level radioactive waste," "spent nuclear material" or "radiofrequency" and includes petroleum, petroleum products and petroleum by-products and waste;

(iii) "RELEASE" means any release, spill, emission, leaking, pumping, dumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any property currently or formerly owned, operated or leased by the applicable party or its subsidiaries; and

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(iv) "REMEDIAL ACTION" means all actions, including any capital expenditures, required by a Governmental Entity or required under or taken pursuant to any Environmental Law, or voluntarily undertaken to (A) clean up, remove, treat, remediate or address any Hazardous Materials in the indoor or outdoor environment; (B) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not endanger or threaten to endanger the public or employee health or welfare or the indoor or outdoor environment; (C) perform pre-remedial studies and investigations or post-remedial monitoring and care pertaining or relating to a Release.

(b) Except as set forth in Section 3.15 of the Company Disclosure Schedule:

(i) The operations of the Company and its subsidiaries have been and are in material compliance with all Environmental Laws, and the Company is not aware of any facts, circumstances or conditions, which without significant capital expenditures, would prevent material compliance in the future;

(ii) To the Company's knowledge, the Company and its subsidiaries have obtained all Company Permits, required under applicable Environmental Laws for the continued operations of their respective businesses; the Company and its subsidiaries have made all material filings, reports and notices required under any Environmental Law for the past and future operations of their respective businesses;

(iii) The Company and its subsidiaries are not subject to any outstanding written orders or material contracts or agreements with any Governmental Entity or other person respecting (A) Environmental Laws, (B) any Remedial Action, (C) any Release or threatened Release of a Hazardous Material, or (D) an assumption of responsibility for environmental claims of another person or entity;

(iv) The Company and its subsidiaries have not received any written communication alleging, in respect of any such party, the violation of or liability (real or potential) under any Environmental Law; or requesting, with respect to any such party, information with respect to an investigation pursuant to CERCLA, or any foreign or state counterpart thereto, or any other Environmental Law;

(v) To the Company's knowledge, neither the Company nor any of its subsidiaries has any material contingent liability in connection with any Remedial Action or the Release of any Hazardous Material (whether on-site or off-site) or employee or third party exposure to Hazardous Materials;

(vi) To the Company's knowledge, the operations of the Company and its subsidiaries involving the generation, transportation, treatment, storage or disposal of Hazardous Materials are in material compliance with applicable Environmental Laws and, to the Company's knowledge, there has been no disposal by the Company or its subsidiaries of any Hazardous Materials on or in any site listed or formally proposed to be listed on the National Priorities List promulgated pursuant to CERCLA or any foreign

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or state remedial priority list promulgated or maintained pursuant to comparable foreign or state law, except where such disposal would not reasonably be expected to create a material adverse liability for the Company;

(vii) To the Company's knowledge, there is not now nor has there been in the past, on, in or at any Owned Facility, Leased Facility, Former Facility (defined as all of the real property formerly owned, leased or used, other than those used solely for office or administrative purposes, by the Company or any of its current or former subsidiaries or corporate predecessors in interest at any time in the past), or any other facility for which the Company or its subsidiaries has assumed responsibility for environmental claims, any of the following: (A) any underground storage tanks; (B) landfills, dumps or surface impoundments; (C) any planned, ongoing or completed Remedial Action; (D) any asbestos-containing materials; or (E) any polychlorinated biphenyls;

(viii) There is not now, nor to the Company's knowledge, has there been in the past, on, in or at any Owned Facility, Leased Facility, Former Facility, or any other facility for which the Company or its subsidiaries has assumed responsibility for environmental claims, any site on or nominated for the National Priority List promulgated pursuant to CERCLA or any foreign or state remedial priority list promulgated or published pursuant to any comparable foreign or state law; and

(ix) No judicial or administrative proceedings are pending or, to the Company's knowledge, threatened against the Company or its subsidiaries alleging the violation of or seeking to impose liability pursuant to any Environmental Law and to the Company's knowledge, there are no investigations pending or threatened against the Company or any of its subsidiaries under Environmental Laws.

(c) The Company has made available to Parent copies of all environmentally related assessments, audits, investigations, or similar reports (and has provided, upon reasonable specific request, sampling reports) in its possession or control and which were prepared in the last five years (and has provided, upon reasonable specific request, earlier information) relating to the Company or its subsidiaries or any real property currently or formerly owned, operated or leased by or for the Company or its subsidiaries, including any Owned Facility, Leased Facility, or Former Facility.

SECTION 3.16 Tax Matters.

(a) The Company and its Subsidiaries have (A) duly filed (or there has been filed on their behalf) with the appropriate governmental authorities all Tax Returns (as defined in Section 3.16(g)) required to be filed by them on or prior to the date hereof, other than those Tax Returns the failure of which to file would not, individually or in the aggregate, have a Material Adverse Effect on the Company and its subsidiaries taken as a whole, and such Tax Returns are true, correct and complete in all material respects, and (B) duly paid in full or made provision in accordance with generally accepted accounting principles (or there has been paid or provision

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has been made on their behalf) for the payment of all Taxes (as defined in
Section 3.16(g)) shown to be due with such Tax Returns.

(b) There is no audit, examination, deficiency, refund litigation, proposed adjustment or matter in controversy with respect to any Taxes due and owing by the Company or its subsidiaries.

(c) There are no outstanding requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes or deficiencies against the Company or any of its subsidiaries, and no power of attorney granted by either the Company or any of its subsidiaries with respect to any Taxes is currently in force.

(d) Neither the Company nor any of its subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes.

(e) There are no liens relating to Taxes not yet due and payable.

(f) Neither the Company nor any of its subsidiaries has any liability under Treasury Regulation Section 1.1502-6 for U.S. federal income Taxes of any Person other than the Company and its subsidiaries.

(g) For purposes of this Agreement: (A) "Taxes" means any and all federal, state, local, foreign or other taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any taxing authority, including, without limitation, taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation or net worth, and taxes or other charges in the nature of excise, withholding, ad valorem or value added, and (B) "Tax Return" means any return, report or similar statement (including the attached schedules) required to be filed with respect to any Tax, including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.

(h) To the Company's knowledge, neither the Company nor any of its subsidiaries has any material income or gain that has been or continues to be deferred under Regulations Section 1.1502-13 or Regulations Section 1.1502-13T (or under Regulations Section 1.1502-13, 1.1502-13T, 1.1502-14, or 1.1502-14T, all as in effect prior to Treasury Decision 8597) and the Company does not have any material excess loss accounts in a subsidiary under Regulations Section 1.1502-19.

SECTION 3.17 Absence of Questionable Payments. Neither the Company nor any of its subsidiaries nor, to the Company's knowledge, any director, officer, agent, employee or other person acting on behalf of the Company or any of its subsidiaries, has used any corporate or other funds for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures relating to political activity to government officials or others or established or maintained any unlawful or unrecorded funds in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any other domestic or foreign Law. Neither the Company nor any of its

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subsidiaries nor, to the Company's knowledge, any director, officer, agent, employee or other person acting on behalf of the Company or any of its subsidiaries, has accepted or received any unlawful contributions, payments, gifts or expenditures.

SECTION 3.18 Material Contracts.

(a) Section 3.18 of the Company Disclosure Schedule sets forth a list of all Material Contracts. The Company has heretofore made available to Parent true, correct and complete copies of all written or oral contracts and agreements (and all amendments, modifications and supplements thereto and all side letters to which the Company or any of its subsidiaries is a party affecting the obligations of any party thereunder) to which the Company or any of its subsidiaries is a party or by which any of its assets or properties are bound that are of the following type: (i) to the extent material to the business, assets or properties of the Company and its subsidiaries taken as a whole, product design or development, or indemnification contracts (including, any contract to which the Company or any of its subsidiaries is a party involving employees of the Company); (ii) merchandising or distribution agreements involving the payment of in excess of $2,500,000 per year; (iii) to the extent material to the business, assets or properties of the Company and its subsidiaries taken as a whole, contracts granting a right of first refusal or first negotiation; (iv) to the extent material to the business, assets or properties of the Company and its subsidiaries taken as a whole, partnership or joint venture agreements; (v) agreements for the acquisition, sale or lease of material assets or properties of the Company (by merger, purchase or sale of assets or stock or otherwise) entered into since January 1, 1996 involving in excess of $1,000,000; (vi) to the extent material to the business, assets or properties of the Company and its subsidiaries taken as a whole, contracts or agreements with any Governmental Entity; (vii) loan or credit agreements, mortgages, indentures or other agreements or instruments evidencing indebtedness for borrowed money by the Company or any of its subsidiaries or any such agreement pursuant to which indebtedness for borrowed money, in each case involving in excess of $1,000,000; (viii) to the extent material to the business, assets or properties of the Company and its subsidiaries taken as a whole, agreements that purport to limit, curtail or restrict the ability of the Company or any of its subsidiaries to compete in any geographic area or line of business; (ix) to the extent material to the business, assets or properties of the Company and its subsidiaries taken as a whole, foundry, wafer manufacturing or fabricating agreements, (x) supply or second source agreements involving the payment of in excess of $2,500,000 per year, (xi) agreements with customers relating to the sale of products involving the payment of in excess of $2,500,000 per year and (xii) commitments and agreements to enter into any of the foregoing (collectively, together with any such contracts entered into in accordance with Section 5.1, the "MATERIAL CONTRACTS").

(b) Each of the Material Contracts constitutes the valid and legally binding obligation of the Company or its subsidiaries, enforceable in accordance with its terms, and is in full force and effect. There is no default under any Material Contract so listed either by the Company (or its subsidiaries) or, to the Company's knowledge, by any other party thereto, and no event has occurred that with the giving of notice, the lapse of time, or both would constitute a default thereunder by the Company (or its subsidiaries) or, to the Company's knowledge, any other party.

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(c) No party to any such Material Contract has given notice to the Company of or made a claim against the Company in respect of any breach or default thereunder.

SECTION 3.19 Subsidies. Section 3.19 of the Company Disclosure Schedule sets forth a list of all grants, subsidies and similar arrangements directly or indirectly between or among the Company or any of its subsidiaries, on the one hand, and any domestic or foreign Governmental Entity or any other person, on the other hand. Except as set forth on Section 3.19 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has requested, sought, applied for or entered into any grant, subsidy or similar arrangement directly or indirectly from or with any domestic or foreign Governmental Entity or any other person.

SECTION 3.20 Intellectual Property.

(a) As used herein, the term "SCHEDULED INTELLECTUAL PROPERTY" means domestic and foreign letters patent, patents, patent applications, exclusive patent licenses, exclusive know-how licenses, trademark registrations and applications, service mark registrations and applications and copyright registrations and applications. Section 3.20(a) of the Company Disclosure Schedule sets forth all right, title and interest of the Company and its subsidiaries in and to all of the Scheduled Intellectual Property owned or used by the Company and its subsidiaries and material to the operation of their respective businesses. Such Scheduled Intellectual Property and the goodwill of the Company's and its subsidiaries' respective businesses associated therewith, together with all copyrights, databases, non-exclusive patent licenses, software licenses, non-exclusive know-how licenses, trade names, trademarks, service marks, trade secrets, technical knowledge, know-how, confidential information, customer lists, proprietary processes, techniques, formulae, "semiconductor chip product" and "mask works" (as such terms are defined in 17 U.S.C. 901), and related ownership, use and other rights (including rights of renewal and rights to sue for past, present and future infringements or misappropriations thereof), shall be collectively referred to herein as the "INTELLECTUAL PROPERTY."

(b) To the Company's knowledge or the knowledge of those persons who have Company responsibility for such matters, and except as are not reasonably expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole; (i) each item of Scheduled Intellectual Property is in compliance with applicable legal requirements relating to the enforceability or maintenance of such item (including payment of filing, examination and maintenance fees and proofs of working or use, as applicable) other than any requirement that if, not satisfied, would not result in a revocation or otherwise materially affect the enforceability of the item of Scheduled Intellectual Property in question, and the Company has taken reasonable steps to protect the Intellectual Property; (ii) the Company and its subsidiaries own or have the right to use, free and clear of all Liens, all Intellectual Property necessary for the operation of the businesses of the Company and its subsidiaries as presently conducted and as presently proposed to be conducted;
(iii) each material item of Intellectual Property owned or used by the Company and its subsidiaries immediately prior to the Effective Time will be owned or available for use by Parent and the Surviving Corporation immediately subsequent to the Effective Time; (iv) the Company and its subsidiaries have taken all action deemed by the Company or the relevant subsidiary to be necessary or reasonable, but in no event less than all commercially reasonable action, to protect and preserve the confidentiality of all technical Intellectual Property not

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otherwise protected by patents, patent applications or copyrights; (v) each employee of the Company and its subsidiaries has executed a non-disclosure agreement which included an agreement to assign to the Company or its subsidiaries all rights to Intellectual Property originated or invented by such employee relating to the business of the Company and its subsidiaries; and (vi) no trade secret or confidential know-how material to the business of the Company or any of its subsidiaries as currently operated has been disclosed or authorized to be disclosed to any third party, other than pursuant to a non-disclosure agreement that protects the Company's or such subsidiary's proprietary interests in and to such trade secrets and confidential know-how.

(c) To the Company's knowledge, neither the Company nor any of its subsidiaries has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties, and neither the Company nor any of its subsidiaries has, within the three years prior to the date of this Agreement, received any charge, complaint, claim or notice alleging any such interference, infringement, misappropriation or violation. No third party has, to the Company's knowledge, interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of the Company or its subsidiaries, except where such actions are not reasonably expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

(d) Section 3.20(d) of the Company Disclosure Schedule lists each license, sublicense, agreement or permission pursuant to which the Company uses any material item of Scheduled Intellectual Property that any third party owns and that any of the Company or any of its subsidiaries uses pursuant to license, sublicense, agreement or permission that either (i) if such license, sublicense, agreement or permission were denied, would reasonably be expected to have a Material Adverse Effect on the Company or its Subsidiaries taken as a whole, or
(ii) includes any past due obligation to pay any royalty amount or any obligation to pay a royalty, whether fixed or determined based on usage, following the Effective Date.

(e) Except as set forth in Section 3.20(e) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has granted (i) any exclusive or non-exclusive licenses (other than implied patent licenses in the ordinary course of business) in any patents owned by the Company or any of its subsidiaries or (ii) any exclusive licenses in any other Intellectual Property owned by the Company or any of its subsidiaries to any third party.

(f) Except as may have been given in connection with patent licenses set forth in Section 3.20(e) of the Company Disclosure Schedule or given in the ordinary course of business within the scope of the Company's standard terms and conditions of sale, neither the Company nor any of its subsidiaries has entered into any agreement to indemnify any other person against any charge of infringement or misappropriation of any Intellectual Property.

(g) The Company owns or has the right to use all Intellectual Property incorporated or used in the Company's existing websites.

(h) The execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereby, will not (i) result in the loss or

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impairment of, or give rise to any right of any third party to terminate or alter, any of the Company's or any of its subsidiaries' rights to own any of its Intellectual Property except as are not unreasonably expected to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole, nor (ii) require the consent of any Governmental Entity or third party in respect of any such Intellectual Property.

SECTION 3.21 Year 2000.

(a) Based on a comprehensive assessment of the Systems that are used or relied on by the Company or by any of its subsidiaries in the conduct of their respective businesses, neither the Company nor any of its subsidiaries knows of any such System that will malfunction, will cease to function, will generate incorrect data or will provide incorrect results when processing, providing and/or receiving (i) date-related data in, into or between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth or twenty-first centuries.

(b) Based on a comprehensive assessment of the products and services that are or have been sold, licensed, rendered or otherwise provided or offered by the Company or by any of its subsidiaries in the conduct of their respective businesses, neither the Company nor any of its subsidiaries knows of any such products or services which will malfunction, will cease to function, will generate incorrect data or will produce incorrect results when processing, providing or receiving (i) date-related data in, into or between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth or twenty-first centuries; and, to the knowledge of the Company or any of its subsidiaries, neither the Company nor any of its subsidiaries is or will be subject to claims or liabilities arising from any such malfunction, cessation of function, generation of incorrect data or production of incorrect results.

(c) Neither the Company nor any of its subsidiaries has made other representations or warranties regarding the ability of any product or service that is or has been sold, licensed, rendered or otherwise provided or offered by the Company or by any of its subsidiaries, or of any of the Systems used or relied on by the Company or any of its subsidiaries, in the conduct of their respective businesses to operate without malfunction, to operate without ceasing to function, to generate correct data or to produce correct results when processing, providing or receiving (i) date-related data in, into and between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries.

(d) Based on a comprehensive inquiry of all material suppliers, service providers and customers of the Company and its subsidiaries, neither the Company nor any of its subsidiaries knows of any inability on the part of any such supplier, service provider or customer to timely ensure that its own (and its material suppliers' and service providers') Systems continue to operate without malfunction, to operate without ceasing to function, to generate correct data and to produce correct results when processing, providing and/or receiving (i) date-related data in, into and between the twentieth and twenty-first centuries and (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries.

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(e) For the purposes of this Agreement, "SYSTEMS" means, with respect to a person, any and all material hardware, software and firmware used by the Company or any of its subsidiaries in the course of their respective businesses, including (i) any and all source and object code; (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise; (iii) billing, reporting and other management information systems; (iv) all descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing; (v) all content contained on any Internet site(s) maintained by such person or any of its subsidiaries; and (vi) all documentation, including user manuals and training materials, relating to any of the foregoing.

SECTION 3.22 Opinion of Financial Advisor. Broadview International LLC (the "FINANCIAL ADVISOR") has delivered to the Company Board its opinion, dated the date of this Agreement, to the effect that, as of such date, the Exchange Ratio is fair to the stockholders of the Company from a financial point of view, and such opinion has not been withdrawn or modified.

SECTION 3.23 Brokers. No broker, finder, investment banker or other person (other than the Financial Advisor, a true and correct copy of whose engagement letter has been provided to Parent) is entitled to any brokerage, finder's or other fee or commission or expense reimbursement in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of the Company or any of its affiliates.

SECTION 3.24 Accounting Matters. Neither the Company nor, to the Company's knowledge, any of its affiliates, has taken or agreed to take any action or is aware of any fact or circumstance that would prevent the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations.

SECTION 3.25 Recalls. There has not been any recall made generally to customers since December 31, 1998 of any product designed, manufactured, shipped, sold or otherwise introduced into the stream of commerce by or on behalf of the Company or any of its past or present subsidiaries ("PRODUCT"), and (ii) to the Company's knowledge, there are currently no material defects in design, manufacturing, materials or workmanship which involve any Product that accounts for a material portion of the Company's sales.

SECTION 3.26 Takeover Statute. The Company has taken all action required to be taken by it in order to exempt this Agreement, the Option Agreement and the transactions contemplated hereby and thereby from, and this Agreement, the Option Agreement and the transactions contemplated hereby and thereby (the "COVERED TRANSACTIONS") are exempt from, the requirements of any "moratorium," "control share," "fair price," "affiliate transaction," "interested stockholder," "business combination" or other antitakeover Laws of any state (collectively, "TAKEOVER STATUTES"). Subtitle 6 (Sections 3-601 through 3-603) and Subtitle 7 (Sections 3-701 through 3-709) of the MGCL are not applicable to the Covered Transactions. Holders of Shares do not have dissenters' or appraisal rights in connection with the Merger.

SECTION 3.27 Company Rights Agreement. The Company Board has taken all necessary action (including, any amendment thereof) under the Rights Agreement, dated as of

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May 2, 1990, between the Company and the First National Bank of Boston, as Rights Agent (the "COMPANY RIGHTS AGREEMENT"), so that none of the execution or delivery of this Agreement or the Option Agreement, the exchange of the shares of Parent Common Stock for the Shares in accordance with Article II, or any other transaction contemplated hereby or thereby will cause (i) the rights (the "RIGHTS") issued pursuant to the Company Rights Agreement to become exercisable under the Company Rights Agreement, (ii) Parent or Merger Sub to be deemed an "Acquiring Person" (as defined in the Company Rights Agreement), or (iii) the "Stock Acquisition Date" or "Distribution Date" (each as defined in the Company Rights Agreement) to occur upon any such event.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB

Except as set forth in the disclosure schedule delivered by Parent to the Company prior to the execution of this Agreement (the "PARENT DISCLOSURE SCHEDULE") (each section of which qualifies the correspondingly numbered representation and warranty or covenant to the extent specified therein), Parent and Merger Sub hereby represent and warrant to the Company as follows:

SECTION 4.1 Organization.

(a) Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted.

(b) Each of Parent and Merger Sub is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing is not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on Parent and its subsidiaries taken as a whole.

(c) Parent has heretofore delivered to the Company accurate and complete copies of the certificate of incorporation and bylaws of Parent and the charter and bylaws of Merger Sub as currently in effect.

SECTION 4.2 Authority Relative to This Agreement.

(a) Each of Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement and the Option Agreement and to consummate the transactions contemplated hereby and thereby. No other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement and the Option Agreement or to consummate the transactions contemplated hereby or thereby. This Agreement and the Option Agreement have been duly and validly executed and delivered by each of Parent and Merger Sub

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and constitute valid, legal and binding agreements of each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with their respective terms.

(b) The Board of Directors of Parent (the "PARENT BOARD"), the Board of Directors of Merger Sub and Parent as the sole stockholder of Merger Sub have duly and validly authorized the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and taken all corporate actions required to be taken by such Boards of Directors and Parent as the sole stockholder of Merger Sub for the consummation of the transactions.

SECTION 4.3 SEC Reports; Financial Statements. Parent has filed all required forms, reports and documents with the SEC since January 1, 1997, each of which complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act, each as in effect on the dates such forms, reports, and documents were filed. Parent has heretofore delivered or made available to the Company, in the form filed with the SEC (including, any amendments thereto), (i) its Annual Report on Form 10-K each of the fiscal years ended December 31, 1996, 1997 and 1998, (ii) all definitive proxy statements relating to Parent's meetings of stockholders (whether annual or special) held since January 1, 1997 and (iii) all other reports or registration statements filed by Parent with the SEC since January 1, 1997 (the "PARENT SEC REPORTS"). None of the Parent SEC Reports contained, when filed, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Parent included in the Parent SEC Reports complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC in respect thereof and fairly presented, in conformity with GAAP on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of Parent and its consolidated subsidiaries, in each case as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments). For purposes of this Agreement "PARENT BALANCE SHEET" means the consolidated balance sheet of Parent as of March 31, 1999, and "PARENT BALANCE SHEET DATE" means March 31, 1999. Except as and to the extent disclosed in the Parent SEC Reports, since the Parent Balance Sheet Date, there has not been any event, occurrence or development which is reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on the Parent and its subsidiaries taken as a whole.

SECTION 4.4 Undisclosed Liabilities. There are no liabilities of Parent or any of its subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise which are required to be reflected in its financial statements (or in the notes thereto) in accordance with GAAP, other than: (a) liabilities disclosed, provided for or reserved against in the Parent Balance Sheet or in the notes thereto; (b) liabilities arising in the ordinary course of business after the date of the Parent Balance Sheet; (c) liabilities disclosed in the Parent SEC Reports prior to the date hereof and (d) liabilities under this Agreement.

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SECTION 4.5 Capitalization of Parent. The authorized capital stock of Parent consists of: (i) 500,000,000 shares of Common Stock, par value $1.00 per share (the "PARENT SHARES"), of which 392,940,778 shares are issued and outstanding as of July 20, 1999 and 858,938 shares of which are held in Parent's treasury, and (ii) 10,000,000 shares of Preferred Stock, par value $25.00 per share, no shares of which are outstanding as of July 20, 1999. All of the issued and outstanding Parent Shares have been validly issued, and are duly authorized, fully paid, non-assessable and free of preemptive rights. As of July 23, 1999, 45,800,485 Parent Shares were available for issuance under Parent's option plans, of which 30,836,160 were issuable upon or otherwise deliverable in connection with the exercise of options outstanding on such date. Except as set forth above and except for the Parent Rights Agreement (as hereinafter defined), as of July 23, 1999, there are outstanding (i) no shares of capital stock or other voting securities of Parent; (ii) no securities of Parent convertible into or exchangeable for shares of capital stock or voting securities of Parent;
(iii) no options or other rights to acquire from Parent and no obligations of Parent to issue, any capital stock, voting securities, or securities convertible into or exchangeable for capital stock or voting securities of Parent; and (iv) no equity equivalents, interests in the ownership or earnings of Parent, or other similar rights (including stock appreciation rights).

SECTION 4.6 Information Supplied. None of the information supplied or to be supplied by Parent or Merger Sub specifically for inclusion or incorporation by reference in (i) the S-4 will, at the time the S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) the Proxy Statement will, at the date mailed to stockholders of the Company and at the time of the Company Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event in respect of Parent, its officers and directors, or any of its subsidiaries should occur which is required to be described in an amendment of, or a supplement to, the S-4 or the Proxy Statement, Parent shall promptly so advise the Company and such event shall be so described, and such amendment or supplement (which the Company shall have a reasonable opportunity to review) shall be promptly filed with the SEC. The S-4 will comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations thereunder. No representation is made under this Section 4.6 with respect to any statements made or incorporated by reference in the S-4 or the Proxy Statement based on information supplied by the Company specifically for inclusion or incorporation by reference therein.

SECTION 4.7 Consents and Approvals; No Violations. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act, the Exchange Act, state securities or blue sky Laws, the HSR Act, any other Antitrust Law, the filing and acceptance for record of the Articles of Merger as required by the MGCL, as otherwise set forth in Section 4.7 to the Parent Disclosure Schedule, and such other filings, permits, authorizations, consents and approvals which, if not obtained or made, are not reasonably expected to have a Material Adverse Effect on Parent and its

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subsidiaries taken as a whole no filing with or notice to, and no permit, authorization, consent or approval of, any Governmental Entity is necessary for the execution and delivery by Parent or Merger Sub of this Agreement or the Option Agreement or the consummation by Parent or Merger Sub of the transactions contemplated hereby or thereby. The execution, delivery, and performance of this Agreement and the Option Agreement by Parent or Merger Sub and the consummation by Parent or Merger Sub of the transactions contemplated hereby and thereby will not result in any violation of or conflict with, constitute a default under (with or without due notice or lapse of time or both), require any consent, waiver or notice under any term of, or result in the reduction or loss of any benefit or the creation or acceleration of any right or obligation under, (i) the respective certificate or articles of incorporation or bylaws of Parent or the charter and bylaws of Merger Sub, (ii) any agreement, note, bond, mortgage, indenture, contract, lease, permit or other obligation or right to which Parent or Merger Sub is a party or by which any of their respective assets or properties is bound, or (iii) any Law, except in the case of (ii) or (iii) where any of the foregoing is not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on Parent and its subsidiaries taken as a whole.

SECTION 4.8 No Prior Activities. Except for obligations incurred in connection with its incorporation or organization or the negotiation and consummation of this Agreement and the transactions contemplated hereby, Merger Sub has neither incurred any obligation or liability nor engaged in any business or activity of any type or kind whatsoever or entered into any agreement or arrangement with any person.

SECTION 4.9 Brokers. No broker, finder, investment banker or other person (other than Morgan Stanley & Co.) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent, Merger Sub or any of their affiliates.

SECTION 4.10 Accounting Matters. Neither Parent nor, to Parent's knowledge, any of its affiliates, has taken or agreed to take any action or is aware of any fact or circumstance that would prevent the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations.

ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS

SECTION 5.1 Conduct of Business of the Company. Except as set forth in
Section 5.1 of the Company Disclosure Schedule, as consented to by Parent or as contemplated by this Agreement, during the period from the date hereof to the Effective Time, the Company will, and will cause each of its subsidiaries to, conduct its operations in the ordinary and usual course of business consistent with past practice and use reasonable best efforts to preserve intact its current business organizations, keep available the service of its current officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it to the end that goodwill and ongoing businesses shall be unimpaired at the Effective Time. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement or in Section 5.1 of the Company Disclosure Schedule, prior to the Effective

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Time, neither the Company nor any of its subsidiaries will, without the prior written consent of Parent:

(a) amend its charter or bylaws (or other similar organizational or governing instruments) or amend, modify or terminate the Company Rights Plan;

(b) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities convertible into or exchangeable for any stock or any equity equivalents (including, any stock options or stock appreciation rights), except for the issuance or sale of Shares pursuant to outstanding Company Stock Options;

(c) (i) split, combine or reclassify any shares of its capital stock; (ii) declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock; (iii) make any other actual, constructive or deemed distribution in respect of any shares of its capital stock or otherwise make any payments to stockholders in their capacity as such; or (iv) redeem, repurchase or otherwise acquire any of its securities or any securities of any of its subsidiaries (including redeeming any Rights);

(d) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries (other than the Merger);

(e) alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of any subsidiary of Company;

(f) (i) incur or assume any long-term or short-term debt or issue any debt securities, except for borrowings under existing lines of credit in the ordinary and usual course of business consistent with past practice and in amounts not material to the Company and its subsidiaries taken as a whole; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, except in the ordinary and usual course of business consistent with past practice and in amounts not material to the Company and its subsidiaries, taken as a whole, and except for obligations of the wholly owned subsidiaries of the Company; (iii) make any loans, advances or capital contributions to, or investments in, any other person (other than to the wholly owned subsidiaries of the Company or customary loans or advances to employees in the ordinary and usual course of business consistent with past practice and in amounts not material to the maker of such loan or advance); (iv) pledge or otherwise encumber shares of capital stock of the Company or its subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any material Lien thereupon;

(g) (i) except as set forth in Section 5.1(g) of the Company Disclosure Schedule and as required under existing agreements, increase in any manner the

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compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any plan and arrangement as in effect as of the date hereof (including, the granting of stock appreciation rights or performance units) or grant any completion bonuses or change of control payments in respect of the Merger or that will be affected thereby; or (ii) promote or change the classification or status of, or except in the ordinary course of business consistent with past practice, hire any employee or individual;

(h) acquire, sell, lease or dispose of any material assets outside the ordinary and usual course of business consistent with past practice or any assets which in the aggregate are material to the Company and its subsidiaries taken as a whole, or grant any exclusive distribution rights;

(i) except as may be required as a result of a change in Law or in GAAP, make any material change in any of the accounting principles or practices used by it;

(j) revalue in any material respect any of its assets, including, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary and usual course of business consistent with past practice or as required by GAAP;

(k) (i) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any equity interest therein; (ii) enter into any material contract or agreement, other than in the ordinary and usual course of business consistent with past practice, or amend in any material respect any of the Material Contracts or the agreements referred to in Section 3.18; (iii) authorize any new capital expenditure or expenditures which are not provided for in the Company's current capital expenditure plan and which, individually, is in excess of $100,000 or, in the aggregate, are in excess of $250,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action that would be prohibited hereunder;

(l) make or revoke any Tax election, or settle or compromise any Tax liability, or change (or make a request to any taxing authority to change) any aspect of its method of accounting for Tax purposes;

(m) pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary and usual course of business consistent with past practice or in accordance with their terms of liabilities reflected or reserved against in, the consolidated financial statements of the Company and its subsidiaries or incurred since the date of such financial statements or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party;

(n) settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby;

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(o) take any action (including, any action otherwise permitted by this Section 5.1) that would prevent or impede the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations or as a reorganization under Section 368 of the Code;

(p) enter into any agreement or arrangement that limits or otherwise restricts the Company or any of its subsidiaries or any successor thereto or that could, after the Effective Time, limit or restrict the Surviving Corporation and its affiliates (including Parent) or any successor thereto, from engaging or competing in any line of business or in any geographic area;

(q) fail to comply in any material respect with any Law applicable to the Company, its subsidiaries, or their respective assets;

(r) enter into any direct or indirect arrangements for financial subsidies;

(s) adopt, enter into, amend, alter or terminate (partially or completely) any Benefit Plan or Employee Arrangement except as contemplated by this Agreement or to the extent required by applicable Law;

(t) enter into any contract with an officer, director, employee, agent or other similar representative of the Company or any of its subsidiaries that is not terminable, without penalty or other liability, upon not more than 60 calendar days' notice; or

(u) take, propose to take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1(a) through 5.1(t) or any action which would cause the condition set forth in Section 7.2(a) not to be satisfied.

SECTION 5.2 Conduct of Business of Parent. Except as consented to by the Company or as contemplated by this Agreement, during the period from the date hereof to the Effective Time, neither Parent nor any of its subsidiaries will:

(a) amend Parent's certificate of incorporation or bylaws;

(b) take any action that would or would reasonably be expected to prevent, impair or materially delay the ability of the Company or Parent to consummate the transactions contemplated by this Agreement;

(c) take any action (including, any action otherwise permitted by this
Section 5.2) that would prevent or impede the Merger from qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations or as a reorganization under Section 368 of the Code; or

(d) take, propose to take, or agree in writing or otherwise to take, any of the actions described in Section 5.2(a) through 5.2(c) or any action which would cause the condition set forth in Section 7.3(a) not to be satisfied.

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SECTION 5.3 Access to Information.

(a) Between the date hereof and the Effective Time and subject to applicable Law, the Company will give Parent and Merger Sub and their authorized representatives (including, counsel, financial advisors, environmental consultants and auditors) reasonable access to all employees, plants, offices, warehouses and other facilities and to all books and records of the Company and its subsidiaries, will permit Parent and Merger Sub to make such inspections as Parent and Merger Sub may reasonably require, including the right to conduct sampling of surface water, groundwater, soil and outdoor air quality, and building materials and will cause the Company's officers and those of its subsidiaries to furnish Parent and Merger Sub with such financial and operating data and other information in respect of the business, properties and personnel of the Company and its subsidiaries as Parent or Merger Sub may from time to time reasonably request, provided that no investigation pursuant to this Section 5.3(a) shall affect or be deemed to modify any of the representations or warranties made by the Company.

(b) Between the date hereof and the Effective Time, the Company shall furnish to Parent and Merger Sub (i) within five business days after the delivery thereof to management, such monthly financial statements and data as are regularly prepared for distribution to Company management and (ii) at the earliest time they are available, such quarterly and annual financial statements as are prepared for the Company Board, which (in the case of this clause (ii)) shall be in accordance with the books and records of the Company.

(c) Each of Parent and the Company will hold and will cause its authorized representatives to hold in confidence all documents and information furnished to the other in connection with the transactions contemplated by this Agreement pursuant to the terms of that certain Confidentiality Agreement entered into between the Company and Parent dated May 19, 1999 (the "CONFIDENTIALITY AGREEMENT").

ARTICLE VI
ADDITIONAL AGREEMENTS

SECTION 6.1 Preparation of S-4 and the Proxy Statement. Parent and the Company will, as promptly as practicable, jointly prepare and file with the SEC the Proxy Statement in connection with the vote of the stockholders of the Company in respect of the Merger. Parent will, as promptly as practicable, prepare, following receipt of notification from the SEC that it has no further comments on the Proxy Statement, and file with the SEC the S-4 in connection with the registration under the Securities Act of the shares of Parent Common Stock issuable upon conversion of the Shares and the other transactions contemplated hereby. Parent and the Company will, and will cause their accountants and lawyers to, use their reasonable best efforts to have or cause the S-4 to be declared effective as promptly as practicable after filing with the SEC, including, causing their accountants to deliver necessary or required instruments such as opinions, consents and certificates, and will take any other action required or necessary to be taken under federal or state securities Laws or otherwise in connection with the registration process (other than qualifying to do business in any jurisdiction which it is not now so qualified or filing a general consent to service of process in any jurisdiction). The Company and Parent shall, as promptly as practicable after the receipt thereof, provide to the other party copies of any

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written comments and advise the other party of any oral comments, in respect of the Proxy Statement or the S-4 received from the staff of the SEC. The Company will provide Parent with a reasonable opportunity to review and comment on any amendment or supplement to the Proxy Statement prior to filing with the SEC and will provide Parent with a copy of all such filings with the SEC. Parent will provide the Company with a reasonable opportunity to review and comment on any amendment or supplement on the S-4 prior to filing with SEC and will provide the Company with a copy of all such filings with the SEC. Parent will advise the Company, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. The Company will use its reasonable best efforts to cause the Proxy Statement to be mailed to its stockholders at the earliest practicable date.

SECTION 6.2 Letter of Accountants.

(a) The Company shall use all reasonable best efforts to cause to be delivered to Parent a letter of Pricewaterhouse Coopers LLP, the Company's independent auditors, dated as of the date on which the S-4 shall become effective and addressed to Parent, in form and substance reasonably satisfactory to Parent and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the S-4.

(b) Parent shall use all reasonable best efforts to cause to be delivered to the Company a letter of Ernst & Young LLP, the Parent's independent auditors, dated as of the date on which the S-4 shall become effective and addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the S-4.

SECTION 6.3 Meeting. The Company shall take all lawful action to (i) cause a special meeting of its stockholders (the "COMPANY STOCKHOLDER MEETING") to be duly called and held as soon as practicable after the date of this Agreement for the purpose of voting on the approval of the Merger on substantially the terms and conditions set forth in this Agreement and (ii) solicit proxies from its stockholders to obtain the Company Requisite Vote for such approval. Subject to the provisions of Section 6.5(b), the Company Board shall recommend approval of the Merger by the Company's stockholders and the Company Board shall not withdraw, amend or modify in a manner adverse to Parent such recommendation (or announce publicly its intention to do so).

SECTION 6.4 Reasonable Best Efforts.

(a) Subject to the terms and conditions of this Agreement, each party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the Merger and the

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other transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, each party hereto shall make an appropriate filing of a Notification and Report Form pursuant to the HSR Act in respect of the transactions contemplated hereby as promptly as practicable and in any event within ten business days of the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and use its reasonable best efforts to take, or cause to be taken, all other actions consistent with this Section 6.4 necessary to cause the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable.

(b) Each of Parent and the Company shall, in connection with the efforts referenced in Section 6.4(a) to obtain all requisite approvals and authorizations for the transactions contemplated by this Agreement under the HSR Act, or any other Antitrust Law (as hereinafter defined), use its reasonable best efforts to (i) cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party; (ii) keep the other party informed in all material respects of any material communication received by such party from, or given by such party to, the Federal Trade Commission (the "FTC"), the Antitrust Division of the Department of Justice (the "DOJ") or any other Governmental Entity and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated hereby; and (iii) permit the other party to review any material communication given by it to, and consult with each other in advance of any meeting or conference with, the FTC, the DOJ or any such other domestic or foreign Governmental Entity or, in connection with any proceeding by a private party, with any other person, and to the extent permitted by the FTC, the DOJ or such other applicable domestic or foreign Governmental Entity or other person, give the other party the opportunity to attend and participate in such meetings and conferences.

(c) In furtherance and not in limitation of the covenants of the parties contained in Sections 6.4(a) and (b), each of Parent and the Company shall use its reasonable best efforts to resolve such objections if any, as may be asserted by a Governmental Entity or other person in respect of the transactions contemplated hereby under any Antitrust Law. In connection with the foregoing, if any administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any Antitrust Law, each of Parent and the Company shall cooperate in all respects with each other and use its respective reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, nothing in this Section 6.4 shall (i) limit a party's right to terminate this Agreement pursuant to Section 8.2 so long as such party has up to then complied in all material respects with its obligations under this Section 6.4, (ii) require Parent to dispose or hold separate any part of its business or operations or agree not to compete in any geographic area or line of business or (iii) require Parent to dispose or hold separate any part of the Company's business or operations or agree to cause the Company not to compete in any geographic area or

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line of business which would in any such case impair in any material respect any of the benefits intended to be derived by Parent after the Effective Time as a result of the Merger.

(d) The Company agrees that in connection with any litigation which may be brought against the Company or its directors relating to the transactions contemplated hereby, the Company will keep Parent, and any counsel which Parent may retain at its own expense, informed of the course of such litigation, to the extent Parent is not otherwise a party thereto. The Company agrees that it will consult with Parent prior to entering into any settlement or compromise of any such litigation, and that no such settlement or compromise will be entered into without Parent's prior written consent, which consent shall not be unreasonably withheld.

SECTION 6.5 Acquisition Proposals.

(a) The Company will not, nor will it permit any of its subsidiaries to, nor will it authorize or permit any officer, director or employee of or any investment banker, attorney, accountant or other advisor or representative of, the Company or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage the submission of any Acquisition Proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information in respect of, or take any other action to facilitate, any Acquisition Proposal or any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal provided, however, that nothing contained in this Section 6.5(a) shall prohibit the Company Board from furnishing any information to, or entering into discussions or negotiations with, any person that makes an unsolicited bona fide Acquisition Proposal if, and only to the extent that (A) the Company Stockholder Meeting shall not have occurred, (B) the Company Board, after consultation with independent legal counsel, determines in good faith that such action is necessary for the Company Board to comply with its duties to the Company's stockholders under applicable Law, (C) the Company Board determines in good faith that such Acquisition Proposal, if accepted, is reasonably likely to be consummated taking into account all legal, financial, regulatory and other aspects of the proposal and the person making the proposal, and believes in good faith, after consultation with its Financial Advisor and after taking into account the strategic benefits to be derived from the Merger and the long-term prospects of Parent and its subsidiaries, would, if consummated, result in a transaction more favorable to the Company's stockholders than the Merger (any such more favorable Acquisition Proposal being referred to herein as a "SUPERIOR PROPOSAL"), and (D) prior to taking such action, the Company (x) provides reasonable notice to Parent to the effect that it is taking such action and (y) receives from such person an executed confidentiality/standstill agreement in reasonably customary form and in any event containing terms at least as stringent as those contained in the Confidentiality Agreement between Parent and the Company. The Company shall notify Parent of any Acquisition Proposal (including, the material terms and conditions thereof and the identity of the person making it) as promptly as practicable (but in no case later than 24 hours) after its receipt thereof, and shall thereafter inform Parent on a prompt basis of the status of any discussions or negotiations with such a third party, and any material changes to the terms and conditions of such Acquisition Proposal, and shall promptly give Parent a copy of any information delivered to such person which has not previously been reviewed by Parent. The Company has ceased and terminated, and has caused its subsidiaries and affiliates, and their respective officers, directors, employees, investment bankers, attorneys, accountants and other

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agents and representatives to cease and terminate, any existing activities, discussions or negotiations with any parties conducted heretofore in respect of any possible Acquisition Proposal. The Company shall take all necessary steps to promptly inform the individuals or entities referred to in the first sentence of this Section 6.5 of the obligations undertaken in this Section 6.5. "ACQUISITION PROPOSAL" means an inquiry, offer or proposal regarding any of the following (other than the transactions contemplated by this Agreement) involving the Company or any of its subsidiaries: (w) any merger, consolidation, share exchange, recapitalization, business combination or other similar transaction;
(x) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or substantially all the assets of the Company and its subsidiaries, taken as a whole, in a single transaction or series of related transactions; (y) any tender offer or exchange offer for 20% or more of the outstanding Shares or the filing of a registration statement under the Securities Act in connection therewith; or (z) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

(b) The Company Board will not withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent, its approval or recommendation of the Merger unless the Company Board after consultation with independent legal counsel, determines in good faith that such action is necessary for the Company Board to comply with its duties to the Company's stockholders under applicable Law; provided, however, that the Company Board may not approve or recommend (and in connection therewith, withdraw or modify its approval or recommendation of the Merger) an Acquisition Proposal unless such an Acquisition Proposal is a Superior Proposal (and the Company shall have first complied with its obligations set forth in Section 8.3(a) and the time referred to in the last sentence of Section 8.3(a) has expired) and unless it shall have first consulted with independent legal counsel, and have determined that such action is necessary for the Company Board to comply with its duties to the Company's stockholders under applicable Law. Nothing contained in this Section 6.5(b) shall prohibit the Company from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders which, in the good faith reasonable judgment of the Company Board, after consultation with independent legal counsel, is required under applicable Law; provided, however, that except as otherwise permitted in this Section 6.5(b), the Company does not withdraw or modify, or propose to withdraw or modify, its position in respect of the Merger or approve or recommend, or propose to approve or recommend, an Acquisition Proposal. Notwithstanding anything contained in this Agreement to the contrary, any action by the Company Board permitted by, and taken in accordance with, this Section 6.5(b) shall not constitute a breach of this Agreement by the Company. Nothing in this Section 6.5(b) shall (i) permit the Company to terminate this Agreement (except as provided in Article IX hereof) or
(ii) affect any other obligations of the Company under this Agreement.

SECTION 6.6 Public Announcements. Each of Parent, Merger Sub and the Company will consult with one another before issuing any press release or otherwise making any public statements in respect of the transactions contemplated by this Agreement, including, the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law or by obligations pursuant to any

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listing agreement with the NYSE, as determined by Parent, Merger Sub or the Company, as the case may be.

SECTION 6.7 Indemnification.

(a) From and after the Effective Time, the Surviving Corporation shall, and Parent shall cause the Surviving Corporation to the fullest extent permitted by applicable Law to, indemnify, defend, and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, a director or officer of the Company or any subsidiary thereof (each an "INDEMNIFIED PARTY" and, collectively, the "INDEMNIFIED PARTIES") against all losses, expenses (including, reasonable attorneys' fees and expenses), claims, damages, costs or liabilities or, subject to the proviso of the next succeeding sentence, amounts paid in settlement, arising out of actions or omissions occurring at or prior to the Effective Time and whether asserted or claimed prior to, at or after the Effective Time that are in whole or in part (i) based on, or arising out of the fact that such person is or was a director or officer of such party or a subsidiary of such party or (ii) based on, arising out of or pertaining to the transactions contemplated by this Agreement. Without limiting the foregoing, in the event of any such loss, expense, claim, damage, cost or liability (whether or not arising before the Effective Time), (A) the Surviving Corporation shall pay the reasonable fees and expenses of counsel selected by the Indemnified Parties, which counsel shall be reasonably satisfactory to the Surviving Corporation, promptly after statements therefor are received and otherwise advance to such Indemnified Party upon request for reimbursement of documented expenses reasonably incurred, in either case to the extent not prohibited by the MGCL and upon receipt of any affirmation and undertaking required by the MGCL, (B) the Surviving Corporation will cooperate in the vigorous defense of any such matter and (C) any determination required to be made in respect of whether an Indemnified Party's conduct complies with the standards set forth under the MGCL and the Surviving Corporation's charter or bylaws shall be made by independent counsel mutually acceptable to the Surviving Corporation and the Indemnified Party; provided, however, that the Surviving Corporation shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld). The Indemnified Parties as a group may retain only one law firm in respect of each related matter except to the extent there is, in the opinion of counsel to an Indemnified Party, under applicable standards of professional conduct, a conflict on any significant issue between positions of any two or more Indemnified Parties.

(b) For a period of six years after the Effective Time, the Surviving Corporation shall cause to be maintained in effect the policies of directors' and officers' liability insurance maintained by the Company for the benefit of those persons who are covered by such policies at the Effective Time (or the Surviving Corporation may substitute therefor policies of at least the same coverage and amounts containing terms not less advantageous to the insured parties in respect of matters occurring prior to the Effective Time), to the extent that such liability insurance can be maintained annually at a cost to the Surviving Corporation not greater than 200% of the premium for the current Company directors' and officers' liability insurance; provided, however, that if such insurance cannot be so maintained or obtained at such costs, the Surviving Corporation shall maintain or obtain as much of such insurance as can be so

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maintained or obtained at a cost equal to 200% of the current annual premiums of the Company for such insurance.

(c) In the event the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity or such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then and in either such case, proper provision shall be made so that the successors and assigns of the Surviving Corporation shall assume the obligations set for in this Section 6.7.

(d) To the fullest extent permitted by Law, from and after the Effective Time, all rights to liability limitation, exculpation or indemnification now existing in favor of the employees, agents, directors or officers of the Company and its subsidiaries in respect of their activities as such prior to the Effective Time, as provided in the Company's charter or bylaws, in effect on the date thereof or otherwise in effect on the date hereof, shall survive the Merger (and as of or prior to the Effective Time, Parent shall cause the bylaws of Merger Sub to reflect such provisions) and shall continue in full force and effect and shall not be amended or modified for a period of not less than six years from the Effective Time.

(e) The provisions of this Section 6.7 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party, his or her heirs, and his or her representatives.

SECTION 6.8 Notification of Certain Matters. The Company shall give prompt notice to Parent and Merger Sub, and Parent and Merger Sub shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time so as to cause the conditions set forth in Article VII hereof to fail to be satisfied, or (ii) any material failure of the Company, Parent or Merger Sub, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder so as to cause the conditions set forth in Article VII hereof to fail to be satisfied; provided, however, that the delivery of any notice pursuant to this Section 6.8 shall not cure such breach or non-compliance or limit or otherwise affect the remedies available hereunder to the party receiving such notice.

SECTION 6.9 Tax-Free Reorganization Treatment. The parties hereto intend that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code. Each of the parties hereto shall, and shall cause its respective subsidiaries to, use its reasonable best efforts to cause the Merger to so qualify.

SECTION 6.10 Employee Matters.

Except as contemplated by this Agreement, Parent will and will cause the Surviving Corporation to honor the obligations of the Company or any of its subsidiaries under the provisions of each Benefit Plan and Employee Arrangement; provided that the Company shall have the right at any time to amend or terminate any such Benefit Plan and Employee Arrangement in accordance with their terms. The employees of the Company will be eligible to

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participate in Parent's applicable employee benefit plans, as such plans may be in effect from time to time, as soon as administratively convenient (as determined at Parent's sole discretion) after the Effective Time and, at Parent's sole discretion, will become employees of Parent or any of its subsidiaries. Until such time as employees of the Company immediately (the "COMPANY EMPLOYEES") become eligible to participate in Parent's applicable employee benefit plans (the "BENEFITS INTEGRATION DATE"), Parent shall cause such employee welfare benefits to be maintained for such Company Employees that are, in the aggregate, no less favorable than those provided to such Company Employees immediately prior to the Effective time. Following the Benefits Integration Date, with respect to each plan maintained by Parent in which any Company Employee participates (each, a "PARENT PLAN") that is an "employee benefit plan" as defined in Section 3(3) of ERISA, for purposes of eligibility to participate, vesting and, solely with respect to severance and vacation, level of benefit entitlement (but in no event for purposes of benefits accrual), service with the Company and its affiliates (or predecessor employers to the extent the Company and its affiliates provided past service credit) shall be treated as service with Parent to the same extent such service was counted under the corresponding Benefit Plan, if any; provided, however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits. Such service also shall apply for purposes of satisfying any waiting periods, evident of insurability requirements, or the application of any preexisting condition limitations. Each Parent Plan shall waive preexisting condition limitations to the same extent waived under the corresponding Benefit Plan. Company Employees shall be given credit under the applicable Parent Plan for amounts paid under a corresponding Benefit Plan during the same period for though such amounts had been paid in accordance with the terms and conditions of the Parent Plan.

SECTION 6.11 Company Affiliate Agreements. Section 6.11 of the Company Disclosure Schedule sets forth a list of all persons who are, and all persons who to the Company's knowledge will be at the Closing Date, "affiliates" of the Company for purposes of Rule 145 under the Securities Act. The Company will cause such list to be updated promptly through the Closing Date. Not later than 45 days prior to the date of the Company Stockholder Meeting, the Company shall cause its "affiliates" to deliver to Parent a Company Affiliate Agreement substantially in the form attached as EXHIBIT B.

SECTION 6.12 SEC and Other Filings. Each of Parent and the Company shall promptly provide the other party (or its counsel) with copies of all filings made by the other party or any of its subsidiaries with the SEC or any other state, federal or foreign Governmental Entity in connection with this Agreement and the transactions contemplated hereby.

SECTION 6.13 Fees and Expenses. Whether or not the Merger is consummated, all Expenses incurred in connection with this Agreement, the Option Agreement and the transactions contemplated hereby and thereby shall be paid by the party incurring such Expenses, except (a) Expenses incurred in connection with the filing, printing and mailing of the Proxy Statement and the S-4, which shall be shared equally by the Company and Parent, (b) the filing fees required under the HSR Act, which shall be shared equally by the Company and Parent and
(c) if applicable, as provided in Section 8.5. As used in this Agreement, "EXPENSES" includes all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by a party or on its

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behalf in connection with, or related to, the authorization, preparation, negotiation, execution and performance of this Agreement and the transactions contemplated hereby, including the preparation, filing, printing and mailing of the Proxy Statement and the S-4 and the solicitation of stockholder approvals and all other matters related to the transactions contemplated hereby.

SECTION 6.14 Obligations of Merger Sub. Parent will take all action necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement.

SECTION 6.15 Listing of Stock. Parent shall use its reasonable best efforts to cause the shares of Parent Common Stock to be issued in connection with the Merger to be approved for listing on the NYSE on or prior to the Closing Date, subject to official notice of issuance.

SECTION 6.16 Antitakeover Statutes. If any Takeover Statute is or may become applicable to the Merger or the Option Agreement, each of Parent and the Company shall take such actions as are necessary so that the transactions contemplated by this Agreement or the Option Agreement, as applicable, may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of any Takeover Statute on the Merger or the Option Agreement.

SECTION 6.17 Termination of Credit Agreement. Prior to Closing, the Company shall prepay any amounts outstanding under, and shall use its reasonable best efforts to terminate, the Loan Agreement dated as of March 19, 1999 between the Company, Fleet National Bank and the other banks party thereto.

SECTION 6.18 Benchmarq. At the request of Parent, the Company shall merge or liquidate Benchmarq Microelectronics, Inc., a Delaware corporation, into the Company on terms and conditions as are satisfactory to Parent.

ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER

SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger. The respective obligations of each party to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or prior to the Effective Time of each of the following conditions, any or all of which may be waived in whole or in part by the party being benefited thereby, to the extent permitted by applicable Law:

(a) The Merger shall have been approved and adopted by the Company Requisite Vote.

(b) Any waiting periods applicable to the Merger under the HSR Act shall have expired or early termination thereof shall have been granted.

(c) There shall not be in effect any Law of any Governmental Entity of competent jurisdiction restraining, enjoining or otherwise preventing consummation of

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the transactions contemplated by this Agreement and no Governmental Entity shall have instituted any proceeding which continues to be pending seeking any such Law.

(d) The S-4 shall have been declared effective by the SEC and shall be effective at the Effective Time, and no stop order suspending effectiveness shall have been issued and no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been initiated and be continuing.

(e) The Parent Common Stock required to be issued hereunder shall have been approved for listing on the NYSE, subject only to official notice of issuance.

SECTION 7.2 Conditions to the Obligations of Parent and Merger Sub. The respective obligations of Parent and Merger Sub to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or prior to the Effective Time of each of the following additional conditions, any or all of which may be waived in whole or part by Parent and Merger Sub, as the case may be, to the extent permitted by applicable Law:

(a) The representations and warranties of the Company contained herein, shall have been true, except where the failure to be true, individually or in the aggregate, has not had or is not reasonably expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole, in each case when made and on and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified date, which shall speak only as of the specified date).

(b) The Company shall have performed or complied in all material respects with all agreements and conditions contained herein required to be performed or complied with by it prior to or at the time of the Closing.

(c) The Company shall have delivered to Parent a certificate, dated the date of the Closing, signed by the President or any Vice President of the Company (but without personal liability thereto), certifying as to the fulfillment of the conditions specified in Sections 7.2(a) and 7.2(b).

(d) Parent shall have received an opinion of its tax counsel, Weil, Gotshal & Manges LLP, dated the Effective Time, to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. The issuance of such opinion shall be conditioned on the receipt by such tax counsel of representation letters from each of the Parent, Merger Sub and the Company, in each case, in form and substance reasonably satisfactory to Weil, Gotshal & Manges LLP. Each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect.

(e) All authorizations, consents or approvals of (i) any German Governmental Entity required under any German Antitrust Laws in connection with the execution and delivery of this Agreement and the performance of the obligations hereunder and (ii) any other Governmental Entity (other than those specified in Section 7.1(b)) required in connection with the execution and delivery of this Agreement and the performance of the obligations hereunder shall have been

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made or obtained, without any limitation, restriction or condition that is reasonably expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole (or an effect on Parent and its subsidiaries that, were such effect applied to the Company and its subsidiaries, is reasonably expected to have a Material Adverse Effect on the Company), except for such authorizations, consents or approvals, the failure of which to have been made or obtained is not reasonably expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole (or an effect on Parent and its subsidiaries that, were such effect applied to the Company and its subsidiaries, is reasonably expected to have a Material Adverse Effect on the Company).

(f) Not later than 45 days prior to the date of the Company Stockholder Meeting, Parent shall have received from the Company's "affiliates" a Company Affiliate Agreement substantially in the form attached as EXHIBIT B.

(g) The Company shall have received and delivered to Parent a letter from Pricewaterhouse Coopers LLP dated as of the Closing Date, stating that no conditions exist that would preclude the Company from being party to a business combination for which the "pooling of interests" method of accounting would be available. Parent shall have received and (unless waived by the Company) delivered to the Company a letter from Ernst & Young LLP, dated as of the date the S-4 is declared effective and dated as of the Closing Date, stating that accounting of the Merger as a "pooling of interests" under APB 16 and the applicable SEC rules and regulations is appropriate if the Merger is consummated as contemplated by this Agreement. Notwithstanding the foregoing, the satisfaction of this Section 7.2(g) shall not be a condition to the obligations of Parent and Merger Sub to effect the Merger if the failure to satisfy this condition results from any action taken or agreed to be taken by or on behalf of Parent or Merger Sub.

SECTION 7.3 Conditions to the Obligations of the Company. The obligations of the Company to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or prior to the Effective Time of each of the following conditions, any or all of which may be waived in whole or in part by the Company to the extent permitted by applicable Law:

(a) The representations and warranties of Parent and Merger Sub contained herein shall have been true, except where the failure to be true, individually or in the aggregate, has not had or is not reasonably expected to have, a Material Adverse Effect on Parent and its subsidiaries taken as a whole, in each case when made and on and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified date, which shall speak only as of the specified date).

(b) Parent shall have performed or complied in all material respects with all agreements and conditions contained herein required to be performed or complied with by it prior to or at the time of the Closing.

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(c) Parent shall have delivered to the Company a certificate, dated the date of the Closing, signed by the President or any Vice President of Parent (but without personal liability thereto), certifying as to the fulfillment of the conditions specified in Sections 7.3(a) and 7.3(b).

(d) The Company shall have received an opinion of its tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, dated the Effective Time, to the effect that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code. The issuance of such opinion shall be conditioned on the receipt by such tax counsel of representation letters from each of the Parent, Merger Sub and the Company, in each case, in form and substance reasonably satisfactory to Skadden, Arps, Slate, Meagher & Flom LLP. Each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect.

ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER

SECTION 8.1 Termination by Mutual Agreement. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the approval of the Merger by the Company Requisite Vote referred to in Section 7.1(a), by mutual written consent of the Company and Parent by action of their respective Boards of Directors.

SECTION 8.2 Termination by Either Parent or the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by action of the Board of Directors of either Parent or the Company if:

(a) the Merger shall not have been consummated by February 29, 2000, whether such date is before or after the date of approval of the Merger by the Company Requisite Vote (the "TERMINATION Date"); provided, however, that if either Parent or the Company reasonably determines in good faith that additional time is necessary in connection with obtaining any consent, registration, approval, permit or authorization required to be obtained from any Governmental Entity, the Termination Date may be extended by Parent or the Company from time to time by written notice to the other party to a date not beyond March 31, 2000;

(b) the Company Requisite Vote shall not have been obtained at the Company Stockholder Meeting or at any adjournment or postponement thereof;

(c) any Law permanently restraining, enjoining or otherwise prohibiting consummation of the Merger shall become final and non-appealable (whether before or after the approval of the Merger by the Company Requisite Vote); or

(d) any Governmental Entity shall have failed to issue an order, decree or ruling or to take any other action which is necessary to fulfill the conditions set forth in Sections 7.1(b), 7.1(d) and 7.2(e), as applicable, and such denial of a request to issue such order, decree or ruling or take such other action shall have been final and nonappealable;

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provided, however, that the right to terminate this Agreement pursuant to this Section 8.2 shall not be available to any party that has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of the Merger to be consummated.

SECTION 8.3 Termination by the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the approval of the Merger by the Company Requisite Vote referred to in Section 7.1(a), by action of the Company Board:

(a) if (i) the Company is not in breach of Section 6.5, (ii) the Merger shall not have been approved by the Company Requisite Vote,
(iii) the Company Board authorizes the Company, subject to complying with the terms of this Agreement, to enter into a binding written agreement concerning a transaction that constitutes a Superior Proposal and the Company notifies Parent in writing that it intends to enter into such an agreement, attaching the most current version of such agreement to such notice, and (iv) during the three business day period after the Company's notice, (A) the Company shall have negotiated with, and shall have caused its respective financial and legal advisors to negotiate with, Parent to attempt to make such commercially reasonable adjustments in the terms and conditions of this Agreement as would enable the Company to proceed with the transactions contemplated hereby and (B) the Company Board shall have concluded, after considering the results of such negotiations, that any Superior Proposal giving rise to the Company's notice continues to be a Superior Proposal. The Company may not effect such termination unless contemporaneously therewith the Company pays to Parent in immediately available funds the fees required to be paid pursuant to
Section 8.5. The Company agrees (x) that it will not enter into a binding agreement referred to in clause (iii) above until at least the day following the third business day after it has provided the notice to Parent required thereby and (y) to notify Parent promptly if its intention to enter into a written agreement referred to in its notification shall change at any time after giving such notification; or

(b) if there is a breach by Parent or Merger Sub of any representation, warranty, covenant or agreement contained in this Agreement that cannot be cured and would cause a condition set forth in Section 7.3(a) or 7.3(b) to be incapable of being satisfied as of the Termination Date.

SECTION 8.4 Termination by Parent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by Parent, if:

(a) the Company enters into a binding agreement for a Superior Proposal, or the Company Board shall have withdrawn or adversely modified its approval or recommendation of the Merger; or

(b) there is a breach by the Company of any representation, warranty, covenant or agreement contained in this Agreement that cannot be cured and would cause

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a condition set forth in Section 7.2(a) or 7.2(b) to be incapable of being satisfied as of the Termination Date.

SECTION 8.5 Effect of Termination and Abandonment.

(a) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article VIII, this Agreement (other than this
Section 8.5, Sections 5.2(c) and 6.13, and Article IX) shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, employees, agents, legal and financial advisors, or other representatives); provided, however, that except as otherwise provided herein, no such termination shall relieve any party hereto of any liability or damages resulting from any willful breach of this Agreement.

(b) In the event that (i) a bona fide Acquisition Proposal shall have been made or any person shall have publicly announced an intention (whether or not conditional) to make a bona fide Acquisition Proposal in respect of the Company or any of its subsidiaries and thereafter this Agreement is terminated by either Parent or the Company pursuant to Section 8.2(b) (provided that within 9 months of the termination of this Agreement any Acquisition Proposal by a third party is entered into, agreed to, or consummated by the Company) or (ii) this Agreement is terminated by the Company pursuant to Section 8.3(a), or (iii) this Agreement is terminated by Parent pursuant to Section 8.4(a) or Section 8.4(b) as a result of a material breach by the Company of any of the covenants set forth in Section 6.5 hereof, then the Company shall pay Parent a termination fee of $41,700,000 in same-day funds, on the date of such termination, in the case of clause (ii) or (iii), or on the earlier of the date an agreement is entered into in respect of an Acquisition Proposal or an Acquisition Proposal is consummated in the case of clause (i), provided, however, that notwithstanding the foregoing, Parent will not be entitled to a termination fee pursuant to clause (i) above in the event the Acquisition Proposal entered into, agreed to or consummated after such termination is an Acquisition Proposal whereby (A) the Company or any of its subsidiaries acquires a third party (the "EXEMPT ACQUIRED PERSON") pursuant to a merger, consolidation, recapitalization, share exchange or similar transaction in which the Company survives and the shareholders of the Exempt Acquired Person receive shares of Company Common Stock which, immediately following consummation of such merger, consolidation, recapitalization, share exchange or similar transaction, will represent no more than 45% of the issued and outstanding shares of Company Common Stock (or securities convertible or exchangeable into