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IBM to acquire Rational

Will give customers a complete open software development environment for
building on demand e-business and technical software products

December 6, 2002

Armonk, N.Y., and Cupertino, Calif., December 06, 2002 -- IBM (NYSE:IBM)
and Rational Software Corp. (NASDAQ:RATL) today announced the two companies
have entered into a definitive agreement for IBM to acquire the equity of
Rational at a price of approximately $2.1 billion in cash or $10.50 per

Rational provides open, industry standard tools, best practices and
services for developing business applications and building software
products and systems, including embedded software for devices such as cell
phones and medical systems.

IBM now will provide a complete software development environment for
companies that want to integrate their business processes and software
infrastructure across their companies, with suppliers, customers and
employees. This requires the integration of data management, systems
management, collaboration, transaction and business process integration
middleware and software development. The acquisition of Rational will
strengthen IBM's leadership in each of these segments, including software
development, and reinforces IBM's commitment to open industry standards.
The acquisition is an important element of IBM's e-business on demand

"The software industry, business customers and developers are increasingly
demanding software that is based on open industry standards and enables
integration -- integration of business applications across the enterprise
and the value chain of customers and suppliers," said Steve Mills, IBM
senior vice president and group executive, Software Group. "This is an
important aspect of IBM's On Demand strategy. Rational supports what IBM
does best, which is provide infrastructure software and software tools to
help our customers create a complete software development environment. This
deal extends IBM's ability to help customers into the 'on demand' future
with tools built on industry standards to develop, integrate and manage
their business processes."

Rational provides a software development platform that can improve the
speed, quality and predictability of software projects. Ninety-eight of the
Fortune 100, including IBM, use Rational tools and services. IDC estimates
the market opportunity for application development software will grow from
$9 billion in 2002 to $15 billion in 2006.

"Rational helps software developers around the world write software faster,
with less risk and can help produce a higher return on investment," said
Michael Devlin, CEO and co-founder, Rational Software. "The combination of
Rational and IBM is a logical extension to what has been a very beneficial,
20-year relationship and will significantly extend our progress in key
markets and customer segments."

With headquarters in Cupertino, California, and Lexington, Massachusetts,
Rational has more than 3,400 employees and customers in 89 countries.
Rational estimates that more than 600,000 software developers use its
software tools. IBM intends to merge Rational's business operations and
employees into the IBM Software Group as a new division and fifth brand,
joining WebSphere, Lotus, Tivoli and DB2. When the acquisition closes, Mike
Devlin will become the general manager of the new division and will report
to Steve Mills.

Industry analysts have reported that companies using Rational software have
seen return on investment rates of 200 percent and higher as a result of
increased productivity and application quality and reduced development
cycles and testing times. IBM has been using Rational software since 1985.

Rational provides the broadest support for enterprise application
development on J2EE, .NET, Linux and other platforms to support the
deployment of solutions on the customer's choice of hardware and software
platforms. Rational's tools also are used to build technical software,
commercial software products and software for embedded devices and
real-time systems, such as pagers, cell phones, medical devices, air
traffic control systems and government defense systems.

Once the acquisition is completed, IBM plans to:

Market and sell Rational's application development offerings worldwide
through the Rational sales force, which will become part of the IBM sales
force team;
Integrate Rational's products more tightly with IBM software products;
Continue Rational's investment in and support for open standards
technologies that support a variety of platforms, including Unix, Windows
and others; and
Accelerate investments in Rational products to better support the emerging
requirements of current customers, system integrators (SIs) and independent
software vendors (ISVs).

The acquisition is subject to customary closing conditions, including
Rational stockholder and government regulatory approvals. IBM and Rational
anticipate closing in the first quarter of 2003.