PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT, dated as of March 9, 1999, is by and between TERA
COMPUTER COMPANY, a Washington corporation, with headquarters located at 000
Xxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, XX 00000-0000 (the "Company"), and the
INVESTORS identified on the signature page of this Agreement (collectively, the
"Investors").
W I T N E S S E T H:
WHEREAS, the Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, upon the terms and subject to the conditions of this Agreement,
the Investors wish to purchase shares of the common stock, $.01 par value, of
the Company (the "Common Stock"), to acquire the right to receive additional
shares of Common Stock, and to acquire warrants exercisable for shares of Common
Stock;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; CLOSING
(a) Subscription for Initial Shares. Each Investor hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
each Investor, shares of Common Stock (the "Initial Shares") for the total
purchase price set forth on the signature page hereof by such Investor's name
for an aggregate purchase price for all Investors of not less than $5,000,000.
The purchase price per share shall be equal to the lower of (i) $4.50 or (ii)
87.5% of the Market Price of the Common Stock at the Closing Date (the "Purchase
Price"). The number of Initial Shares to be purchased by each Investor shall be
the whole number of shares determined by dividing the total purchase price for
each Investor by the Purchase Price. For purposes of this Agreement the term
"Market Price" for any date means the arithmetic average of the last bid prices
for the five consecutive trading days ending on the day prior to the date in
question.
(b) Warrants. In connection with the purchase of the Initial Shares by
each Investor, the Company agrees to issue warrants to purchase shares of Common
Stock issuable upon exercise of the Warrants, in the form set forth in Appendix
II (the "Warrants"). The aggregate number of shares of Common Stock covered by
the Warrants issued to the Investors shall equal the aggregate number of shares
purchased by the Investors pursuant to Section 1(a). The Warrants shall have an
initial Exercise Price equal to the Market Price of the Common Stock at the
Closing Date.
(c) Form and Method of Payment. Each Investor shall pay the purchase
price for the number of Initial Shares purchased thereby directly to the Company
in United States Dollars by certified or bank check or wire transfer to an
account designated in writing by the Company against issuance to such Investor
of its portion of the Initial Shares and the Warrants. The Company shall deliver
(i) the certificates for the Initial Shares directly to each Investor, and (ii)
the Warrants directly to each Investor against payment of the purchase price for
the Initial Shares to the Company on the Closing Date.
(d) Closing. The date and time of the issuance and sale of the Initial
Shares and issuance of the Warrants (the "Closing Date") shall be at 10:00 a.m.,
Seattle Time, on March 10, 1999 at the offices of Company's counsel in Seattle,
Washington, or at such other mutually agreed date, time and place.
(e) The Company's Conditions Precedent to Sale and Issuance of the
Initial Shares and Warrants. The Investors understand that the Company's
obligation to sell and issue the Initial Shares and to issue the Warrants to the
Investors on the Closing Date is conditioned upon:
(i) Delivery by the Investor to the Company of good funds as
payment in full of an amount equal to the aggregate purchase price from all
Investors for all of the Initial Shares in accordance with Section 1(a) hereof;
(ii) The execution and delivery by all of the Investors of the
Registration Rights Agreement, substantially in the form of Appendix I hereto
(the "Registration Rights Agreement"); and
(iii) The accuracy on the Closing Date of the representations and
warranties of the Investors contained in this Agreement as if made on the
Closing Date and the performance by the Investors on or before the Closing Date
of all covenants and agreements of the Investors required to be performed on or
before the Closing Date.
(f) The Investors' Conditions Precedent to the Sale and Issuance of
the Initial Shares and Warrants. The Company understands that each Investor's
obligations to purchase the Initial Shares and to acquire the Warrants on the
Closing Date is conditioned upon:
(i) Delivery by the Company to the Investors of the certificates
for the Initial Shares and the Warrants in accordance with this Agreement;
(ii) The execution and delivery by the Company of the
Registration Rights Agreement:
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(iii) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date and receipt by the Investors of a certificate, dated the
Closing Date, of the Chief Executive Officer or the Chief Financial Officer of
the Company confirming such matters and such other matters as the Investors may
reasonably request; and
(iv) Receipt by the Investors on the Closing Date of an opinion
of the general counsel for the Company, dated the Closing Date, in form, scope
and substance reasonably satisfactory to the Investors, to the effect set forth
in Annex III.
In addition, at the Closing, the Company shall pay to the Investors the sum of
$100,000 for their transaction expenses.
2. OPTION TO PURCHASE ADDITIONAL SHARES AND WARRANTS
(a) Option. Pursuant to the terms of this Section 2, the Investors may
exercise an one-time option to purchase from the Company shares of Common Stock
(the "Option Shares") for a total purchase price equal to $5,000,000 at a price
per share equal to the Market Price at the Closing Date (the " Option"). The
Option shall be exercisable at any time after the Closing and shall expire
ninety (90) days after the Registration Statement described in Section 2(a)(i)
of the Registration Rights Agreement is declared effective by the Securities and
Exchange Commission ("SEC").
(b) Warrants Issuable Upon Exercise of Option. In connection with the
Investor's exercise of the Option, the Company agrees to issue to the Investors
warrants having the terms and conditions included in the form of warrant
attached hereto as Annex II (the "Additional Warrants"). The Additional Warrants
shall have an initial Exercise Price per share equal to the Market Price at the
Closing Date, and the number of shares of Common Stock issuable upon exercise of
the Warrants shall equal 111.11% of the shares of Common Stock issued to the
Investors pursuant to Section 2(a).
(c) Exercise of Option. In order to exercise the Option, the Investors
holding not less than a majority of the Initial Shares must deliver a notice of
exercise (the "Exercise Notice") to the Company not later than 90 days after the
Registration Statement is declared effective by the SEC. The Option must be
exercised for all, and not less than all, $5,000,000 of Option Shares. The
Exercise Notice shall specify the Option Closing Date (as defined below), which
shall be no more than 10 days after the delivery of the Exercise Notice, and
shall specify the number of Option Shares and Additional Warrants to be issued
to each Investor delivering the Exercise Notice. Once delivered, the Company
shall be obligated to sell the Option Shares and issue the Additional Warrants
to the Investors delivering the Exercise Notice, and such Investors shall be
obligated to
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purchase the Option Shares and receive the Additional Warrants from the Company,
upon the terms and subject to the conditions of this Agreement.
(d) Option Closing Date. The date and time of the issuance and sale of
the Option Shares and the issuance of the Additional Warrants (the "Option
Closing Date") shall be 10:00 a.m., Seattle time, on the date specified in the
Exercise Notice, at the offices of the Company's counsel in Seattle, Washington,
or as otherwise mutually agreed to by the parties hereto.
(e) Form and Method of Payment. The Investors shall pay the purchase
price for the Option Shares in United States dollars directly to the Company by
certified or bank check or wire transfer to an account designated in writing by
the Company against issuance and delivery to the Investors of the Option Shares
and the Additional Warrants, and the Company shall deliver the certificates for
the Option Shares and Additional Warrants directly to the Investors against
payment of the purchase price for the Option Shares to the Company on the Option
Closing Date.
(f) Conditions Precedent to Sale and Issuance of the Option Shares and
Issuance of the Additional Warrants. The Investors understand that the Company's
obligation to sell and issue the Option Shares and to issue the Additional
Warrants to the Investors is conditioned upon:
(i) Delivery by the Investors to the Company of good funds in the
aggregate amount of $5,000,000 as payment in full of all of the Option Shares;
(ii) The accuracy on the Option Closing Date of the
representations and warranties of the Investors contained in this Agreement as
if made on the Option Closing Date and the performance by the Investors on or
before the Option Closing Date of all covenants and agreements of the Investors
required to be performed on or before the Option Closing Date; and
(iii) No Change of Control of the Company shall have occurred on
or after the Closing Date. "Change of Control" means the occurrence of any of
(i) an acquisition on or after the Closing Date by an individual or legal entity
or "group" (as described in Rule 13d-5(b)(1) promulgated under the 0000 Xxx) of
in excess of 50% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's Board of Directors which is
not approved by those individuals who are members of the Board of Directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, or the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
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(g) Investors' Conditions Precedent to Purchase of the Option Shares
and Acquisition of the Additional Warrants. The Company understands that the
Investors' obligation to purchase the Option Shares and to acquire the
Additional Warrants on the Option Closing Date is conditioned upon:
(i) Delivery by the Company to the Investors of the certificates
for the Option Shares and the Additional Warrants in accordance with this
Agreement;
(ii) The accuracy on the Option Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Option Closing Date and the performance by the Company on or before
the Option Closing Date of all covenants and agreements of the Company required
to be performed on or before the Option Closing Date and receipt by the
Investors of a certificate, dated the Option Closing Date, of the Chief
Executive Officer or the Chief Financial Officer of the Company confirming such
matters and the satisfaction of the conditions precedent set forth in this
Section 2; and
(iii) Receipt by the Investor on the Option Closing Date of an
opinion of the general counsel of the Company, dated the Option Closing Date, in
form, scope and substance reasonably satisfactory to the Investor, substantially
to the effect set forth in Annex III attached hereto.
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3. INVESTORS' RIGHT TO ADDITIONAL ISSUANCES OF COMMON STOCK
(a) Initial Adjustment Date.
(i) If the Adjustment Price for the Initial Adjustment Date is
less than the Purchase Price at the initial Closing, then the Company shall
issue to each Investor the number of Adjustment Shares calculated in accordance
with the following formula:
[ (A x C) / B ] - A
where:
A = Number of Initial Shares and Option Shares (if applicable)
outstanding and beneficially owned by Investor on the Initial
Adjustment Date,
B = Adjustment Price for the Initial Adjustment Date, and
C = Purchase Price at the initial Closing.
(ii) If the Company issues any additional shares of Common Stock
upon the Initial Adjustment Date to the Investors pursuant to Section 3(a)(i),
then it shall also issue to the Investors an equal number of Warrants with the
same exercise price per share as the Warrants issued in the initial Closing
based on the Initial Shares outstanding.
(b) Subsequent Issuances of Adjustment Shares. On each subsequent
Adjustment Date, if the Adjustment Price for that Adjustment Date is less than
the lower of (i) the Purchase Price at the initial Closing or (ii) the lowest
Adjustment Price used with respect to any prior Adjustment Date, then the
Company shall issue to each Investor the number of Adjustment Shares calculated
in accordance with the following formula:
[ (A x C) / B ] - A
where:
A = Number of Initial Shares, Option Shares (if applicable) and
Adjustment Shares (if applicable) outstanding and beneficially owned
by such Investor on the Adjustment Date,
B = Adjustment Price applicable to the Adjustment Date, and
C = The lower of (i) the Purchase Price at the initial Closing or (ii)
the Lowest Adjustment Price used with respect to any prior Adjustment
Date.
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(c) Certain Definitions. For purposes of this Section 3, the following
terms shall have the indicated meanings:
"Adjustment Date" means the last day of each Adjustment Period
during the Term.
"Adjustment Period" means a period commencing on the day after
the Initial Adjustment Date and ending on the same day (as the Initial
Adjustment Date) of each third month thereafter until there have been three
Adjustment Dates (in addition to the Initial Adjustment Date) and on the same
day on each sixth month thereafter until there have been two more Adjustment
Dates.
"Adjustment Price" means the product of 75% times the arithmetic
average of the Closing Price of the Common Stock during the Measurement Period
ending on the Trading Day immediately preceding the Initial Adjustment Date or
an Adjustment Date, as the case may be.
"Closing Price" of the Common Stock on any date means the last
bid price for one share of Common Stock on such date on the principal securities
exchange or other market on which such security is listed for trading which
constitutes the principal securities market for such security, as reported by
such exchange or market.
"Initial Adjustment Date" means the date on which the
Registration Statement described in Section 2(a)(i) of the Registration Rights
Agreement) is declared effective by the SEC.
"Measurement Period" means, with respect to any date, the period
of five (5) consecutive Trading Days ending on the Trading Day prior to such
date.
"Term" means the period commencing on the Closing Date and ending
on the last Adjustment Date.
"Trading Day" means a day on whichever of the national securities
exchange or other market which at the time constitutes the principal securities
market for the Common Stock, is open for general trading.
(d) No Fractional Shares. No fractional shares of Common Stock shall
be issued as Adjustment Shares but, in lieu of any fraction of a share of Common
Stock that would otherwise be issuable as Adjustment Shares, the Company shall
pay in cash an amount equal to the product of (i) the applicable Adjustment
Price and (ii) such fraction of a share.
(e) Delivery of Adjustment Shares. The Company shall issue and deliver
to each Investor certificates for the Adjustment Shares on or before the fifth
business day following any Adjustment Date, or as otherwise agreed to by the
parties
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hereto. Delivery of certificates for the Adjustment Shares shall be made at a
location mutually agreed to by the parties hereto or through the Depository
Trust Company Fast Automated Securities Transfer program, as the parties may
agree.
(f) Condition Precedent to Issuance of Adjustment Shares. Each
Investor understands that the Company's obligation to issue the Adjustment
Shares to such Investor in accordance with this Agreement is conditioned upon
the accuracy in all material respects on the Adjustment Date of the
representations and warranties of the Investor contained in Sections 4(a), (b),
(c), (d), (f) and (g) of this Agreement as if made on the Adjustment Date. In
addition, each Investor shall certify to the Company the number of shares of
Common Stock held by such Investor as of the Initial Adjustment Date and each
subsequent Adjustment Date.
(g) Issuance in Lieu of Adjustment Shares. If the issuance of any
Adjustment Shares would result in an Investor beneficially owning more than 4.9%
of the then outstanding shares of the Company's Common Stock, the Company, in
lieu of issuing the Adjustment Shares, shall issue warrants to purchase the
number of Adjustment Shares. Such warrants shall be in the form of the Warrants
set forth in Appendix II, provided that the exercise price shall be $0.01 per
share. For purposes of this provision, beneficial ownership shall be determined
in accordance with Section 13(d) of the 1934 Act and Regulation 13D-G
thereunder.
(h) Termination. The Company's obligation to issue Adjustment Shares
shall terminate upon the following:
(i) Upon the closing of a firmly underwritten public offering of
the Company's Common Stock with price to public of not less than $10.00 per
share;
(ii) Upon the closing of a merger, consolidation or sale of all
or substantial all of the Company's assets pursuant to which the Company's
shareholders are entitled to receive consideration in cash and/or securities
with a value of not less than $10.00 per share; or
(iii) The Company has issued the Maximum Share Amount (as such
term is defined in Section 6(h)) permitted by Nasdaq Rule 4460(i).
4. INVESTORS' REPRESENTATIONS AND WARRANTIES
Each Investor represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) Purchase for Investment. The Investor is purchasing the Initial
Shares and acquiring the Warrants and, upon exercise of the Option, will
purchase the Option Shares and acquire the Additional Warrants, and upon
issuance of any Adjustment
8
Shares, will acquire the Adjustment Shares, and upon exercise of the Warrants or
Additional Warrants, will acquire the shares of Common Stock issuable upon such
exercise (the "Warrant Shares"), for its own account for investment only and not
with a view towards the public sale or distribution thereof. The Initial Shares,
the Option Shares, the Warrants, the Additional Warrants, the Adjustment Shares
and the Warrant Shares are collectively referred to as the "Securities." The
Investor understands that its investment in the Securities involves a high
degree of risk.
(b) Accredited Investor; No Broker-Dealer. The Investor is an
"accredited investor" as that term is defined in Rule 501 of Regulation D under
the 1933 Act by reason of Rule 501(a)(3). The Investor is not a person required
to be registered as a broker or dealer under Section 15(a) of the 1934 Act or a
member of the National Association of Securities Dealers, Inc.
(c) Reoffers and Resales. All subsequent offers and sales of the
Securities by the Investor shall be made pursuant to registration of the
Securities being offered and sold under the 1933 Act or pursuant to an exemption
from registration.
(d) Company Reliance. Each Investor understands that the Initial
Shares are being offered and sold, the Warrants are being issued, and the Option
Shares, Additional Warrants, Adjustment Shares and Warrant Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and each Investor's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Investors set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investors to acquire
the Securities.
(e) Information Provided. Each Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances, and
operations of the Company and materials relating to the offer and sale of the
Securities, that have been requested by the Investor. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
management of the Company and have received complete and satisfactory answers to
any such inquiries.
(f) Absence of Approvals. Each Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities.
(g) Purchase Agreement. This Agreement has been duly and validly
authorized, executed, and delivered on behalf of each Investor and is a valid
and binding agreement of each Investor enforceable in accordance with its terms,
subject to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
9
5. COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to, and covenants and agrees with,
the Investors that:
(a) Organization and Authority. The Company is a corporation duly
organized and validly existing under the laws of the State of Washington, and
has all requisite corporate power and authority (i) to own, lease, and operate
its properties and to carry on its business as now being conducted, and (ii) to
execute, deliver, and perform its obligations under this Agreement, the
Warrants, the Additional Warrants and the Registration Rights Agreement, and the
other agreements to be executed and delivered by the Company in connection with
this Agreement, and to consummate the transactions contemplated hereby and
thereby. The Company is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions wherein such qualification is
necessary and where failure so to qualify could have a material adverse effect
on the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company. The Company has no subsidiaries.
(b) Capitalization. The authorized capital stock of the Company
consists of (i) 25,000,000 shares of Common Stock, $.01 par value, and (ii)
5,000,000 shares of Preferred Stock, $.01 par value. The Company's outstanding
securities are as set forth in Schedule 5(b). The Company does not have
outstanding any material amount of securities (or obligations to issue any such
securities) convertible into, exchangeable for or otherwise entitling the
holders thereof to acquire shares of Common Stock, except as disclosed in the
Disclosure Documents, in this Agreement or in Schedule 5(b) hereof. The
outstanding shares of Common Stock and outstanding options, warrants, and other
securities to purchase Common Stock have been duly authorized and validly
issued. None of such outstanding shares of Common Stock, options, warrants, and
other securities has been issued in violation of the preemptive rights of any
security holder of the Company. The offers and sales of the outstanding shares
of Common Stock and options, warrants and other rights to acquire Common Stock
were at all relevant times either registered under the 1933 Act and applicable
state securities laws or exempt from such requirements. Except as set forth on
Schedule 5(b), no holder of any of the Company's securities has any rights,
"demand," "piggy-back" or otherwise, to have such securities registered by
reason of the intention to file, filing or effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement).
(c) Concerning the Securities. The Securities have been duly
authorized and the Initial Shares and Option Shares, when issued and paid for in
accordance with this Agreement, the Adjustment Shares, when issued, and the
Warrant Shares, when issued upon due exercise of the Warrants and/or the
Additional Warrants, as the case may be, will be duly and validly issued, fully
paid and non-assessable, and will not subject the holder thereof to personal
liability by reason of being such holder. There are no preemptive or similar
rights of any security holder of the Company or any other person
10
to acquire any of the Initial Shares, the Option Shares, the Adjustment Shares
or the Warrant Shares. The Common Stock currently is listed for trading on the
Nasdaq National Market System ("Nasdaq") and, except as set forth in Schedule
5(c), (i) the Company and the Common Stock meet the currently applicable
criteria for continued listing and trading on Nasdaq; (ii) the Company has not
been notified in the last three years by Nasdaq of any failure or potential
failure to meet the criteria for continued listing and trading on Nasdaq; (iii)
no suspension of trading in the Common Stock is in effect; and (iv) the Company
knows of no reason that the Common Stock will not be eligible for listing on
Nasdaq.
(d) Purchase Agreement; Warrants; Registration Rights Agreement. This
Agreement, the Warrants, the Additional Warrants and the Registration Rights
Agreement have been duly and validly authorized by the Company, this Agreement
has been duly executed and delivered on behalf of the Company and this Agreement
is, and the Warrants, the Additional Warrants and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding obligations of the Company enforceable in accordance with their
respective terms, subject to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and limits upon rights to indemnity.
(e) Non-contravention. The execution and delivery of this Agreement by
the Company and the issuance by the Company of the Securities, as contemplated
by this Agreement, and completion of the other transactions contemplated in this
Agreement, the Registration Rights Agreement, the Warrants and the Additional
Warrants, do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default under, the
Restated and Amended Articles of Incorporation or Bylaws of the Company, or any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound which would have a material adverse effect on the Company, or any
applicable law, rule or regulation or any applicable decree, judgment or order
of any court, United States federal or state regulatory body, administrative
agency or other governmental body having jurisdiction over the Company or any of
its properties or assets which would have a material adverse effect on the
Company.
(f) Approvals. Except as set forth in Schedule 5(f), no authorization,
approval or consent of any court, governmental body, regulatory agency or Nasdaq
is required to be obtained by the Company for (i) the issuance and sale of the
Initial Shares and the Option Shares and the issuance of the Warrants, the
Additional Warrants and the Adjustment Shares, as contemplated by this
Agreement, and (ii) the issuance of Warrant Shares upon exercise of the
Warrants, except for the filing of one or more Forms D with respect to the
Securities as required under Regulation D under the 1933 Act and Listing
Applications on Nasdaq.
(g) Information Provided. The Company has made available to the
Investors copies of all periodic reports, statements and other documents that
the Company
11
has filed with the SEC under the Exchange Act since January 1, 1996
(collectively, the "Disclosure Documents"), each in the form (including exhibits
and any amendments thereto) required to be filed with the SEC. All information
provided by or on behalf of the Company to the Investors in connection with the
transactions contemplated by the Agreement, including, without limitation, the
Disclosure Documents, does not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances in which they were made, not
misleading.
(h) Absence of Certain Changes. Except as disclosed in Schedule 5(h)
or the Disclosure Documents, since September 30, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company, and the Company has no material (individually or in
the aggregate) liabilities, debts or obligations whether accrued, absolute,
contingent or otherwise, and whether due or to become due. Subsequent to
September 30, 1998, the Company has not incurred any liabilities, debts or
obligations of any nature whatsoever which are individually or in the aggregate
material to the Company, other than those incurred in the ordinary course of its
business or disclosed in the Disclosure Documents or described in Schedule 5(h).
(i) Absence of Certain Proceedings. There is no action, suit or
proceeding, before or by any court, public board or body or governmental agency
pending or, to the knowledge of the Company, threatened against the Company and,
to the knowledge of the Company, there is no inquiry or investigation before or
by any court, public board or body or governmental agency pending or threatened
against the Company, in any such case wherein an unfavorable decision, ruling or
finding would have a material adverse effect on the properties, business,
condition (financial or other), results of operations or prospects of the
Company or the transactions contemplated by this Agreement or any of the
documents contemplated hereby or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
(j) SEC Filings. The Company has timely filed all required forms,
reports and other documents with the SEC. All of such forms, reports and other
documents complied, when filed, in all material respects, with all applicable
requirements of the 1933 Act and the 1934 Act.
(k) No Solicitation. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
person acting on behalf of the Company, in respect of or in connection with the
offer and sale of the Securities. Neither the Company nor any person authorized
to act on its behalf will sell or offer for sale any shares of Common Stock, the
Warrants or the Additional Warrants, or solicit any offers to buy any shares of
Common Stock, the Warrants or the Additional Warrants, so as thereby to cause
the issuance or sale of any of the Securities to be in violation of Section 5 of
the 1933 Act.
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(l) Certain Issuances of Securities. Except as set forth on Schedule
5(l), the Company has not issued any shares of Common Stock or shares of any
series of preferred stock or other securities convertible into, exchangeable for
or otherwise entitling the holder to acquire shares of Common Stock that are
subject to Rule 4460(i) of Nasdaq (or any successor, replacement or similar
provision thereof or of any other market on which the Common Stock is listed for
trading) (collectively, "Rule 4460(i)").
6. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
(a) Transfer Restrictions. Each Investor acknowledges that (i) the
Warrants and Additional Warrants have not been and are not being registered
under the 1933 Act, and, except as provided in the Registration Rights
Agreement, the other Securities have not been and are not being registered under
the 1933 Act, and may not be transferred unless (x) subsequently registered
thereunder or (y) such Investor shall have delivered to the Company an opinion
of counsel, reasonably satisfactory in form, scope, and substance to the
Company, to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration; (ii) any sale of
the Securities made in reliance on Rule 144 promulgated under the 1933 Act may
be made only in accordance with the terms of said Rule and further, if said Rule
is not applicable, any such resale of Securities under circumstances in which
the seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder (other than pursuant to Section 6(d) hereof and
pursuant to the Registration Rights Agreement).
(b) Restrictive Legend. Each Investor acknowledges and agrees that,
until such time as any of the Securities have been registered under the 1933 Act
as contemplated by the Registration Rights Agreement, the certificates for the
such Securities shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
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Once the applicable Registration Statement required to be filed by the Company
pursuant to Section 2 of the Registration Rights Agreement has been declared
effective, thereafter (i) upon request of a Investor the Company will substitute
certificates without the above-referenced legend for certificates for any
Securities issued prior to the date such Registration Statement is declared
effective by the SEC which bear such legend and promptly remove any
stop-transfer restriction relating to such Securities, but in no event later
than five Business Days after surrender of such certificates by such Investor,
and (ii) the Company shall not place any restrictive legend on certificates for
any Securities issued or impose any stop-transfer restriction thereon.
(c) Form D. The Company agrees to file a Form D with the SEC with
respect to the Securities as required under Regulation D promulgated under the
1933 Act and to provide a copy thereof to the Investors promptly after such
filing. Each Investor agrees to cooperate with the Company in connection with
such filing and, upon request of the Company, to provide all information
relating to such Investor reasonably required for such filing.
(d) Authorization for Trading; Reporting Status. On or before the date
that is 30 days after the Closing Date, but in any event before the effective
date of the Registration Statement, the Company shall file a listing application
for the Initial Shares and Warrant Shares with the Nasdaq and shall provide
evidence of such filing to each Investor, and the Company, on or before the date
that is 30 days after the issuance thereof, file a listing application for the
Option Shares, Adjustment Shares and Warrant Shares relating to Additional
Warrants. From the Closing Date until such time as the Registration Statement is
no longer required to be in effect, the Company shall file all reports required
to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
(e) Use of Proceeds. The Company does not own or have any present
intention of acquiring any "margin stock" as defined in Regulation G (12 C.F.R.
Part 207) of the Board of Governors of the Federal Reserve System ("margin
stock"). The proceeds of sale of the Initial Shares and Option Shares will be
used for general working capital purposes and in the operation of the Company's
business. Neither the Company nor any agent acting on its behalf has taken or
will take any action which might cause this Agreement or the transactions
contemplated hereby to violate Regulation G, Regulation T or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the 1934 Act, in each case as in effect now or as the same may hereafter be in
effect.
(f) Blue Sky Laws. On or before the Closing Date, the Company shall
take such action as shall be necessary to qualify, or to obtain an exemption
from qualification for, the Initial Shares and Option Shares for sale to the
Investors pursuant to this Agreement and the Warrants, the Additional Warrants,
the Adjustment Shares and the
14
Warrant Shares for issuance to the Investors, under such of the securities or
"blue sky" laws of jurisdictions as shall be applicable to the offer and sale of
the Initial Shares, Option Shares, the issuance of the Warrants and Additional
Warrants, and the offer of the Adjustment Shares pursuant to this Agreement. The
Company shall furnish copies of all filings, applications, orders, and grants or
confirmations of exemptions relating to such securities or "blue sky" laws to
the Investors within five days of filing or receipt thereof, as the case may be.
(g) Certain Expenses and Fees. Whether or not the closing of the
transactions contemplated hereby occurs, the Company shall pay or reimburse the
Investors for all reasonable expenses (including, without limitation, legal fees
and expenses of counsel to the Investors of up to $15,000) incurred by the
Investors in connection with this Agreement and the transactions contemplated
hereby. Notwithstanding the foregoing, the Company shall pay on demand all
expenses (including reasonable attorneys' fees and expenses) incurred by the
Investors, and the Investors shall pay on demand all expenses (including
reasonable attorneys' fees and expenses) incurred by the Company, as a
consequence of, or in connection with, (i) any default or breach of any of the
other party's obligations under this Agreement, the Warrants, the Additional
Warrants and the Registration Rights Agreement (which payment shall be made by
the defaulting or breaching party), and (ii) the enforcement or restructuring of
any right of, including the collection of any payments due, the Investors or the
Company, as the case may be, under any of such agreements or instruments,
including any action or proceeding relating to such enforcement or any order,
injunction or other process seeking to restrain the Company or the Investors, as
the case may be, from paying any amount due the Investors or the Company, as the
case may be, in which the party seeking such enforcement or restructuring
prevails.
(h) Shareholder Approval.
(i) Notwithstanding any other provision herein, unless
Shareholder Approval (as defined in Section 6(h)(iii) below) shall have been
obtained from the shareholders of the Company or waived by the Nasdaq, the
Company shall not be required to issue pursuant to this Agreement, whether as
Initial Shares, Option Shares, Adjustment Shares and Warrant Shares more than
2,862,872 shares of Common or such greater number as permitted by the rules of
the Nasdaq (such amount to be subject to equitable adjustment from time to time
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating to the Common Stock occurring after the Closing Date
(the "Maximum Share Amount"). The Maximum Share Amount shall be allocated among
the holders of Initial Shares, Option Shares and Adjustment Shares pro rata
based on the total number of such shares then outstanding. The Company shall
maintain records which show the number of shares of Common Stock issued by the
Company pursuant to this Agreement, which records shall be controlling in the
absence of manifest error.
15
(ii) The Company shall promptly, but in no event later than five
business days after the occurrence, give notice to each holder, and any holder
may at any time after the occurrence give notice to the Company, in either case,
if on any ten trading days within any period of 20 consecutive trading days the
Company would not have been able to issue Option Shares, Adjustment Shares or
Warrant Shares as a consequence of the limitations set forth in Section 6(h)(i).
If the Company shall have given or been required to give any such notice, or if
a holder shall have given any such notice, then within twenty business days
after such notice is given or was required to be given, then the Company
thereafter shall convene a meeting of the shareholders of the Company as soon as
practicable and obtain the Shareholder Approval. In circumstances in which it
appears likely that the Company may issue the Maximum Share Amount, the Company
and the Investors shall discuss and negotiate in good faith whether it would be
appropriate to seek Shareholder Approval prior to time the Company would
otherwise be required to seek Shareholder Approval pursuant to this Section
6(h).
(iii) For purposes of this Agreement, "Shareholder Approval"
means the approval by a majority of the votes cast by the holders of shares of
Common Stock (in person or by proxy) at a meeting of the shareholders of the
Company (duly convened at which a quorum was present), of the issuance by the
Company of 20% or more of the outstanding Common Stock of the Company for less
than the greater of the book or market value of such Common Stock, taking into
account all issuances of Common Stock to the Investors on the Closing Date and
Option Closing Date, on all Adjustment Dates, and upon the exercise of the
Warrants and Additional Warrants, as and to the extent required under Rule
4460(i).
(i) Best Efforts. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Initial Shares as the case may be, of this Agreement on
the Closing Date and, if the Option has been exercised, to sell and purchase the
Option Shares on the Option Closing Date.
(j) Certain Trading Restrictions. So long as the Company is in
compliance in all material respects with its obligations to the Investor
pursuant to this Agreement, the Registration Rights Agreement and the Warrants
and Additional Warrants, each Investor agrees that it and its affiliates (i)
shall not engage in short sales or other hedging transactions relating to the
Common Stock of the Company from the date of this Agreement through the end of
the Term, and (ii) shall not sell on the market any shares of Common Stock of
the Company during any ten day period prior to the Initial Adjustment Date or
any subsequent Adjustment Date if the market price for the Common Stock is less
than 125% of the then applicable reset price.
(l) Reservation of Common Stock. The Company shall take all action
necessary so that a number of shares of the authorized but unissued Common Stock
sufficient to provide for the issuance of all Adjustment Shares and Warrant
Shares issuable hereunder are at all times reserved by the Company, free from
preemptive rights. If the Company shall issue any securities or make any change
in its capital structure which would
16
change the number of shares of Common Stock issuable as Adjustment Shares or
Warrant Shares as herein provided, the Company shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
issuance of the Adjustment Shares and Warrant Shares on the new basis. If at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to permit the issuance of all Adjustment Shares and Warrant Shares
issuable hereunder, the Company promptly shall seek, and use its best efforts to
obtain and complete, such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(m) Trading Reports. Each Investor shall promptly report to the
Company all market sales of shares of Common Stock of the Company by such
Investor.
(n) Brokers' or Finders' Fees. The Company and the Investors
represents and warrants to each other that they have not incurred any obligation
or liability, contingent or otherwise, for brokerage or finders' fees, or
agents' commission or other like payment in connection with this Agreement or
the transactions contemplated hereby. Each party agrees to indemnify and hold
the other parties harmless from and against any obligation or liability for
brokers' or finders' fees or agents' commissions or other like payment based in
any way on agreements, arrangements or understandings claimed to have been made
by such indemnifying party with any third party.
(o) Right of First Opportunity. For a period of two years after the
Closing Date, the Company will not offer for sale any securities for cash in an
offering exempt from the registration requirements of the 1933 Act without
having first provided to the Investors holding at least 25% of the total of the
Initial Shares, Option Shares and Adjustment Shares then outstanding the
opportunity to purchase such securities on specified terms. The Company shall
provide such Investors at least twenty days prior notice of any such offer and
the Investors shall either commit to purchase all such securities on such terms
within ten days of receipt of such notice or not so commit. If the Investors do
not purchase of such securities, then the Company may offer such terms (but not
more favorable terms) to third parties, provided that such offering be completed
within 90 days after the Investors elect not to purchase. This Section does not
apply to any transaction between the Company and its employees and consultants
pursuant to a stock purchase plan or stock option or similar incentive or
compensatory plan nor to any non-registered offering for at least $7.5 million
headed by a nationally recognized investment banking firm.
7. MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of Washington.
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(b) Counterparts. This Agreement may be executed in counterparts and
by the parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile copy of this Agreement
bearing a signature on behalf of a party hereto shall be legal and binding on
such party.
(c) Headings, etc. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
(e) Amendments. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Investors or the Company therefrom shall in any event be effective unless
the same shall be in writing and signed by the party to be charged with
enforcement, and then shall be effective only in the specific instance and for
the purpose for which given. No course of dealing between the parties hereto
shall operate as an amendment of this Agreement.
(f) Waivers. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(g) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be delivered personally (which shall include
telephone line facsimile transmission) or by courier and shall be effective upon
receipt (or on the next Business Day, if the date of such receipt is not a
Business Day), if delivered personally or by courier, in the case of the Company
addressed to the Company at its address shown in the introductory paragraph of
this Agreement, Attention: Chief Financial Officer (facsimile number (206)
701-2218), with a copy to Stoel Rives LLP, Suite 3600, One Union Square, 000
Xxxxxxxxxx Xxxxxx, Xxxxxxx, XX 00000, Attn: Xxxxxxxxxxx X. Xxxx, Esq. (facsimile
number (000) 000-0000) or, in the case of each Investor, at its address shown on
the signature page of this Agreement, with a copy to the Law Offices of Xxxx X.
Xxxx, 0000 Xxxxxxxx Xxxx, Xxxxx 000, Xxx Xxxxxxx, XX 00000 (facsimile number
(000) 000-0000), or such other address or telephone line facsimile transmission
number as a party shall have provided by notice to the other party in accordance
with this provision. Each Investor hereby designates as its address for any
notice required or permitted to be given to the Investor pursuant to the
Warrants the address shown on the signature page of this Agreement, until such
Investor shall designate another address for such purpose.
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(h) Survival. The respective representations, warranties, covenants,
and agreements of each Investor and the Company contained in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement shall
survive the delivery of payment for the Initial Shares and the Option Shares,
the issuance of the Warrants, the Additional Warrants the Adjustment Shares and
the Warrant Shares, and shall remain in full force and effect regardless of any
investigation made by or on behalf of them or any person controlling or advising
any of them.
(i) Entire Agreement. This Agreement and the annexes and schedules
attached hereto set forth the entire agreement between the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, whether written or oral, with respect thereto.
(j) Termination. The Company and Investors shall have the right to
terminate this Agreement by giving notice to the Company or the Investors, as
the case may be, at any time at or prior to the Closing Date if:
(i) the other party shall have failed, refused, or been unable at
or prior to the date of such termination of this Agreement to perform its
obligations hereunder;
(ii) any other condition of the obligations of the other party
hereunder is not fulfilled; or
(iii) the closing shall not have occurred on a Closing Date on or
before March 16, 1999, other than solely by reason of a breach of this Agreement
by the other party.
Any such termination shall be effective upon the giving of notice thereof by the
Company or the Investors, as applicable. Upon such termination, the terminating
party shall have no further obligation to the other party hereunder and the
other party shall remain liable for any breach of this Agreement or the other
documents contemplated hereby which occurred on or prior to the date of such
termination.
(k) Further Assurances. Each party to this Agreement will perform any
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
(l) Public Statements, Press Releases, Etc. The Company and the
Investors shall have the right to approve before issuance any press releases or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of the Investors, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law or Nasdaq
regulation (although the Investors shall be consulted
19
by the Company in connection with any such press release or other public
disclosure prior to its release and shall be provided with a copy thereof).
(m) Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
Investors and the Company by their respective officers thereunto duly authorized
as of the date set forth above.
TERA COMPUTER COMPANY
By: /s/ XXXXX X. XXXXXXXX
-------------------------------
Name: XXXXX X. XXXXXXXX
Title: PRESIDENT AND CEO
INVESTOR(S)
BANCA DEL GOTTARDO
By: /s/ XXXXX XXXXXXX /s/ XXXXXXX XXXX
-------------------------------------------------------
Name: XXXXX XXXXXXX XXXXXXX XXXX
Title: MEMBER OF EXECUTIVE BOARD OFFICER
Address: viale X. Xxxxxxxxx 0
0000 Xxxxxx
Xxxxxxxxxxx
Telephone: 000-0000-000-0000
Facsimile: 011-4191-808-2454/43
Purchase Price for Initial Shares: $5,000,000.00
21
