SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of September 23, 1997, is by and
between TERA COMPUTER COMPANY, a Washington corporation, with headquarters
located at 0000 Xxxxxxxx Xxxxxx Xxxx, Xxxxxxx, Xxxxxxxxxx 00000 (the "Company"),
and ADVANTAGE FUND LIMITED, a British Virgin Islands corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer 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, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, shares of non-voting, convertible preferred stock
of the Company which will be convertible into shares of Common Stock, $.01 par
value (the "Common Stock"), of the Company;
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 SUBSCRIBE; PAYMENT OF PURCHASE PRICE.
(a) Subscription. The Buyer hereby agrees to purchase from the Company
the number of shares (the "Preferred Shares") of Series C Convertible Preferred
Stock, $.01 par value (the "Preferred Stock"), of the Company set forth on the
signature page of this Agreement, having the terms and conditions as set forth
in the form of Statement of Rights and Preferences of the Series C Convertible
Preferred Stock included in the form of Articles of Amendment attached hereto as
Annex I (the "Statement of Rights") at the price per share and for the aggregate
purchase price set forth on the signature page of this Agreement. The purchase
price for the Preferred Shares shall be payable in United States Dollars. The
shares of Common Stock issuable upon conversion of the Preferred Shares are
referred to herein as the "Common Shares." The Common Shares and the Preferred
Shares are referred to herein collectively as the "Shares."
(b) Form of Payment. Unless otherwise agreed by the Buyer and the
Company, if the parties use the services of an escrow agent (the "Escrow Agent")
in connection with the purchase and sale of the Preferred Shares, the Buyer
shall pay the purchase price for the Preferred Shares by delivering good funds
in United States Dollars to the Escrow Agent identified in the Joint Escrow
Instructions attached hereto as Annex II (the
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"Joint Escrow Instructions"). Such delivery of funds shall be made against
delivery by the Company of the certificates for the Preferred Shares registered
in the name of the Buyer. Unless otherwise agreed by the Buyer and the Company,
(1) promptly following payment by the Buyer to the Escrow Agent of the purchase
price for the Preferred Shares, but in no event later than two Business Days
after such payment, the Company shall deliver certificates for the Preferred
Shares, registered in the name of the Buyer, to the Escrow Agent, (2) the
certificates for the Preferred Shares shall be delivered by the Company to the
Escrow Agent on a delivery against payment basis at the closing, and (3) by
signing this Agreement, the Buyer and the Company each agree to all of the terms
and conditions of, and become a party to, the Joint Escrow Instructions, all of
the provisions of which are incorporated herein by this reference as if set
forth in full. As used in this Agreement, the term "Business Day" means any day
other than a Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.
(c) Method of Payment. Unless otherwise agreed by the Buyer and the
Company, payment to the Escrow Agent of the purchase price for the Preferred
Shares shall be made by wire transfer of funds to:
Citibank, N.A.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA#000000000
For credit to A/C#37179446
For credit to the account of Xxxxx X. Xxxxx Attorney Escrow Account
Reference: Advantage/Tera
Unless otherwise agreed by the Buyer and the Company, not later than 4:00 p.m.,
New York City time, on the date which is not later than two Business Days after
the Company shall have accepted this Agreement and returned a signed counterpart
thereof to the Buyer or its legal counsel, the Buyer shall deposit with the
Escrow Agent the aggregate purchase price for the Preferred Shares.
(d) Use of Escrow Agent Optional. If the parties agree not to use the
Escrow Agent in connection with the purchase and sale of the Preferred Shares,
the Buyer shall pay the purchase price for the Preferred Shares directly to the
Company by certified bank check or wire transfer to an account designated in
writing by the Company, and the Company shall deliver the certificates for the
Preferred Shares directly to the Buyer, not later than 4:00 p.m., New York City
time, on the date which is not later than two Business Days after the Company
shall have accepted this Agreement and returned a signed counterpart thereof to
the Buyer or its legal counsel.
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2. BUYER REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) Purchase for Investment. The Buyer is purchasing the Preferred
Shares for its own account for investment only and not with a view towards the
public sale or distribution thereof.
(b) Accredited Investor; No Broker-Dealer. The Buyer is an "accredited
investor" as that term is defined in Rule 501 of the General Rules and
Regulations under the 1933 Act by reason of Rule 501(a)(3). The Buyer is not a
person required to be registered as a broker or dealer under Section 15(a) of
the Securities Exchange Act of 1934, as amended (the "1934 Act") or a member of
the National Association of Securities Dealers.
(c) Reoffers and Resales. All subsequent offers and sales of the
Shares by the Buyer shall be made pursuant to registration of the Shares being
offered and sold under the 1933 Act or pursuant to an exemption from
registration.
(d) Company Reliance. The Buyer understands that the Preferred Shares
are being offered and sold, and the Common 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 the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Preferred Shares and to receive an offer
of the Common Shares.
(e) Information Provided. The Buyer 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
Preferred Shares and the offer of the Common Shares which have been requested by
the Buyer. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, the Buyer has had the opportunity to obtain and to review the
Company's (1) Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996; (2) Quarterly Reports on Form 10-QSB for the fiscal quarters ended
March 31, 1997 and June 30, 1997; (3) Current Reports on Form 8-K, filed on
April 1, 1997, May 21, 1997, and July 11, 1997, with the SEC; and (4) proxy
statement for the Company's 1997 Annual Meeting (collectively, the "Disclosure
Documents"); and the Buyer understands that its investment in the Shares
involves a high degree of risk.
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(f) Absence of Approvals. The Buyer 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 Shares.
(g) Subscription Agreement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
(h) No Current Holdings. The Buyer owns no shares of Common Stock or
other securities of the Company.
3. COMPANY REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to, and covenants and agrees with, the
Buyer 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
Registration Rights Agreement, the form of which is attached hereto as Annex III
(the "Registration Rights Agreement"), the Statement of Rights and the other
agreements to be executed and delivered by the Company in connection herewith,
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
currently consists of (a) 25,000,000 shares of Common Stock of which 10,658,416
shares were outstanding as of September 22, 1997, all of which are fully paid
and nonassessable; and (b) 5,000,000 shares of Preferred Stock, $.01 par value,
of which (i) none are outstanding and (ii) 5,000 shares will be designated as
Series C Convertible Preferred Stock prior to the Closing Date (as such term is
defined in Section 6 hereof). As of September 22, 1997, the Company had
outstanding options entitling the holders thereof to purchase 2,082,839 shares
of Common Stock and outstanding warrants entitling the holders thereof to
purchase 1,214,342 shares of Common Stock. On the Closing Date there will be no
material increase from September 22, 1997 in the number of shares of Common
Stock outstanding other than
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pursuant to the exercise of such options and/or warrants. 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 above or
in the Disclosure Documents or as set forth in Section 3(b) of the disclosure
letter delivered to the Buyer at or before the execution of this Agreement (the
"Disclosure Letter"). 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. 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), except as set forth in Section 3(b) of the
Disclosure Letter.
(c) Concerning the Securities. The Shares have been duly authorized
and the Preferred Shares, when issued and paid for in accordance with this
Agreement, and the Common Shares, when issued upon conversion of the Preferred
Shares or in payment of dividends thereon, 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 to acquire any of the Shares. The Common Stock is listed for trading on
the Nasdaq SmallCap Market ("Nasdaq") and, except as set forth in Section 3(c)
of the Disclosure Letter, (1) the Company and the Common Stock meet the
currently applicable criteria for continued listing and trading on Nasdaq; (2)
the Company has not been notified since September 25, 1995, by Nasdaq of any
failure or potential failure to meet the criteria for continued listing and
trading on Nasdaq; (3) no suspension of trading in the Common Stock is in
effect; (4) the Company knows of no reason that the Common Shares will not be
eligible for listing on Nasdaq; and (5) the Company has submitted an application
for listing of the Common Stock on the Nasdaq National Market ("NNM").
(d) Subscription Agreement; Registration Rights Agreement. This
Agreement 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 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 as to enforceability 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.
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(e) Non-contravention. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the issuance of the Preferred
Shares as contemplated by this Agreement and the other transactions contemplated
by this Agreement, the Registration Rights Agreement and the terms of the
Preferred Stock 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 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. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
by the Company for (1) the issuance and sale of the Preferred Shares as
contemplated by this Agreement and (2) the issuance of Common Shares on
conversion of the Preferred Shares.
(g) Information Provided. The information provided by or on behalf of
the Company to the Buyer in connection with the transactions contemplated by the
Agreement, including, without limitation, the information referred to in Section
2(e) of this Agreement, 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 circumstance under which they are made, not
misleading.
(h) Absence of Certain Changes. Since December 31, 1996, 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, except as disclosed in the Disclosure
Documents.
(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 taken as a whole 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,
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this Agreement or any of such other documents. The Company does not have pending
before the SEC any request for confidential treatment of information and to the
best of the Company's knowledge no such request will be made by the Company
prior to the time the Registration Statement relating to the Common Shares which
is contemplated by the Registration Rights Agreement is first ordered effective
by the SEC; and to the best of the Company's knowledge there is not pending or
contemplated and has not been any investigation by the SEC of the Company or any
director or officer of the Company.
(j) Properties. The Company has good title to all property, real and
personal (tangible and intangible), and other assets owned by it, free and clear
of all security interests, charges, mortgages, liens or other encumbrances,
except such as are described in the Disclosure Documents or such as do not
materially interfere with the use of such property made, or proposed to be made,
by the Company. The leases, licenses or other contracts or instruments under
which the Company leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable with only such exceptions as do
not materially interfere with the use of such property made, or proposed to be
made, by the Company. The Company has received no notice of any material
violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties.
(k) Labor Relations. No material labor problem exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(l) 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.
(m) Absence of Brokers, Finders, Etc. Except as set forth in Section
3(m) of the Disclosure Letter, no broker, finder or similar person is entitled
to any commission, fee or other compensation by reason of the transactions
contemplated by this Agreement and the Company shall pay, and indemnify and hold
harmless the Buyer from, any claim made against the Buyer by any person for any
such conversion, fee or other compensation.
4. Certain Covenants and Acknowledgments.
(a) Transfer Restrictions. The Buyer acknowledges that (1) the
Preferred Shares have not been and are not being registered under the provisions
of the 1933 Act and, except as provided in the Registration Rights Agreement,
the Common Shares have not been and are not being registered under the 1933 Act,
and may not be transferred unless (A)
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subsequently registered thereunder or (B) the Buyer 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 Shares to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Shares 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 Shares
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 (3) neither the Company nor any other
person is under any obligation to register the Shares (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
4(d) hereof and pursuant to the Registration Rights Agreement).
(b) Restrictive Legend.
(1) The Buyer acknowledges and agrees that the certificates for
the Preferred Shares and, until such time as the Common Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the certificates for the Common Shares issued upon conversion of the
Preferred Shares, may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for the Shares):
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.
Once the Registration Statement required to be filed by the Company pursuant to
Section 2 of the Registration Rights Agreement has been declared effective,
thereafter (1) upon request of the Buyer the Company will substitute
certificates without this restrictive legend for certificates for any Common
Shares issued prior to the date such Registration Statement is declared
effective by the SEC which bear such restrictive legend and remove any
stop-transfer restriction relating thereto promptly, but in no event later than
three Business Days after surrender of such certificates by the Buyer and (2)
the Company shall not place any restrictive legend on certificates for Common
Shares issued on conversion of the Preferred Shares or impose any stop-transfer
restriction thereon except as permitted under the Registration Rights Agreement.
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(2) The Buyer further acknowledges and agrees that the
certificates for the Preferred Shares may bear the following additional
restrictive legends in substantially the following form:
WITH REFERENCE TO THE STATEMENT OR RIGHTS AND PREFERENCES OF
THE SERIES C CONVERTIBLE PREFERRED STOCK (THE "STATEMENT OF
RIGHTS') PURSUANT TO WHICH THE SECURITIES REPRESENTED BY
THIS CERTIFICATE WERE ISSUED, THE PORTION OF THE MAXIMUM
SHARE AMOUNT (AS DEFINED IN SECTION 4(a)(1) OF THE STATEMENT
OR RIGHTS) ALLOCATED TO THE SECURITIES REPRESENTED BY THIS
CERTIFICATE FOR PURPOSES OF CONVERSION THEREOF IS 2,131,000
SHARES OR SUCH GREATER NUMBER AS PERMITTED BY THE RULES OF
THE NASDAQ.
SECTION 7(c)(3) OF THE STATEMENT OR RIGHTS PERMITS A HOLDER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE TO CONVERT
SUCH SECURITIES IN ACCORDANCE WITH THE STATEMENT OF RIGHTS
WITHOUT BEING REQUIRED TO PHYSICALLY SURRENDER THIS
CERTIFICATE TO THE COMPANY UNLESS ALL OF THE SECURITIES
REPRESENTED HEREBY ARE SO CONVERTED. CONSEQUENTLY, FOLLOWING
CONVERSION OF ANY OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE, THE NUMBER OF SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES STATED
HEREON.
(c) Registration Rights Agreement. The parties hereto agree
to enter into the Registration Rights Agreement on or before the
Closing Date.
(d) Form D. The Company agrees to file a Form D with the SEC
with respect to the Shares as required under Regulation D promulgated
under the 1933 Act and to provide a copy thereof to the Buyer promptly
after such filing. The Buyer agrees to cooperate with the Company in
connection with such filing and, upon request of the Company, to
provide all information relating to the Buyer reasonably required for
such filing.
(e) 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 (as
defined in the Registration Rights Agreement), the Company shall file
a listing application for the Common Shares with the Nasdaq or, if the
Common Stock is then listed on the NNM, then the NNM, and shall
provide evidence of such filing to the Buyer. From the Closing Date
until such time as the Registration Statement is no longer
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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.
(f) 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 Preferred Shares will be used for general
working capital purposes and in the operation of the Company's business. None of
such proceeds will be used, directly or indirectly (1) to make any loan to or
investment in any other person or (2) for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock or for the
purpose of maintaining, reducing or retiring any indebtedness which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose that might constitute the transactions
contemplated by this Agreement as a "purpose credit" within the meaning of such
Regulation G. 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.
(g) 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
for, the Preferred Shares for sale to the Buyer pursuant to this Agreement and
the Common Shares for issuance to the Buyer on conversion of the Preferred
Shares under such of the securities or "blue sky" laws of jurisdictions as shall
be applicable to the sale of the Preferred Shares pursuant to this Agreement and
the issuance to the Buyer of Common Shares on conversion of the Preferred
Shares. 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 Buyer on or prior to the Closing Date.
(h) Certain Expenses. Whether or not the closing occurs, the Company
shall pay or reimburse the Buyer for all reasonable expenses (including, without
limitation, legal fees and expenses of counsel to the Buyer of up to $10,000)
incurred by the Buyer in connection with this Agreement and the transactions
contemplated hereby.
(i) Certain Issuances of Securities.
(1) If the transactions contemplated by this Agreement are
subject to the Nasdaq or NNM rules requiring shareholder approval of
certain transactions (the "Nasdaq Shareholder Approval Rules") then unless
the Company obtains Shareholder Approval (as defined in the Statement of
Rights) or a waiver thereof from Nasdaq or
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NNM, as applicable, the Company will not issue any shares of Common Stock
or shares of any other series of preferred stock or other securities
convertible into, exchangeable for or otherwise entitling the holder to
acquire shares of Common Stock which issuance would be subject to the
Nasdaq Shareholder Approval Rules (or any successor or replacement
provision thereof) and which would be integrated with the sale of the
Preferred Shares to the Buyer or the issuance of Common Shares upon
conversion thereof for purposes of the Nasdaq Shareholder Approval Rules
(or any successor or replacement provision thereof).
(2) The Company shall not offer, sell, contract to sell or issue
(or engage any person to assist the Company in taking any such action) any
equity securities or securities convertible into, exchangeable for or
otherwise entitling the holder to acquire, any Common Stock (collectively,
"Equity Securities") at a price below the market price of the Common Stock
during the period from the Closing Date to the date on which the
Registration Statement shall have been effective with the SEC for 60
consecutive days; provided, however, that nothing in this Section 4(i)(2)
shall prohibit the Company from issuing securities (x) pursuant to
compensation plans for employees, directors, officers, advisers or
consultants of the Company and in accordance with the terms of such plans
as in effect as of the date of this Agreement or (y) upon exercise of
conversion, exchange, purchase or similar rights issued, granted or given
by the Company and outstanding as of the date of this Agreement.
(j) 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 Preferred Shares set forth in Section 7 or 8, as the case
may be, of this Agreement on or before the Closing Date.
(k) Certain Trading Restrictions. The Buyer agrees that, during the
period from the date the Registration Statement is first declared effective by
the SEC to the date of the conversion in full or redemption of all Preferred
Shares owned by the Buyer, the Buyer shall not engage in short sales or other
hedging transactions relating to the Common Stock, except that the Buyer may
enter into such transactions involving a number of shares of Common Stock not to
exceed the number of shares for which a Conversion Notice (as defined in Section
5(b) herein) has been submitted to the Company and the Transfer Agent (as
defined in Section 5(a) herein). The Buyer further agrees that, from the Closing
Date until the date the Registration Statement is first declared effective by
the SEC, it will not sell or contract to sell any equity security of the
Company.
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5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
(a) Transfer Agent Instructions. Promptly after the Buyer's delivery
of the aggregate purchase price for the Preferred Shares in accordance with
Sections 1(b) and 1(c) or 1(d) hereof, and prior to the Closing Date, the
Company will instruct ChaseMellon Shareholder Services, L.L.C., as Transfer
Agent and Registrar (the "Transfer Agent"), by letter in the form attached
hereto as Annex IV, to issue certificates for the Common Shares from time to
time on conversion of the Preferred Shares in such amounts as specified from
time to time to the Company in the Conversion Notices delivered in connection
with such conversions and referred to in Section 5(b) of this Agreement. The
Common Shares shall be registered in the name of the Buyer or its nominee and in
such denominations to be specified by the Buyer in connection with each
conversion of Preferred Shares. Such certificates may bear the restrictive
legends specified in Section 4(b) of this Agreement prior to registration of the
resale of the Common Shares under the 1933 Act. The Company warrants that no
instructions other than (x) such instructions referred to in this Section 5(a),
(y) stop-transfer instructions to give effect to Section 4(a) hereof prior to
the registration of the resale of the Common Shares under the 1933 Act, and (z)
the instructions required by Section 4(n) of the Registration Rights Agreement
will be given by the Company to the Transfer Agent and that the Common Shares
otherwise shall be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement. Nothing in this Section 5(a)
shall limit in any way the Buyer's obligation and agreement to comply with all
applicable securities laws upon resale of the Shares. If the Buyer provides the
Company with an opinion of counsel reasonably satisfactory in form, scope, and
substance to the Company that registration of a resale by the Buyer of any of
the Shares in accordance with clause (1)(B) of Section 4(a) of this Agreement is
not required under the 1933 Act, the Company shall permit the transfer of such
Shares and, in the case of the Common Shares, promptly, but in no event later
than three Business Days after receipt of such opinion, instruct the Transfer
Agent to issue upon transfer one more share certificates in such name and such
denominations as specified by the Buyer. The provisions of Section 4(n) of the
Registration Rights Agreement shall be in addition to this Section 5(a) once
said Section 4(n) becomes applicable.
(b) Conversion Procedure. In connection with the exercise of
conversion rights relating to the Preferred Shares, the Buyer or any subsequent
holder of the Preferred Shares shall complete, sign and furnish to the Transfer
Agent, with a copy to the Company, a Notice of Conversion in the form attached
hereto as Annex V, which shall be deemed to satisfy all requirements of the
Statement of Rights (a "Conversion Notice"). As set forth in Section 7(c)(3) of
the Statement of Rights, the number of Common Shares to be issued in connection
with a particular conversion of Preferred Shares is, absent manifest error,
conclusively the number of Common Shares stated in the applicable Conversion
Notice. If in connection with a particular conversion of Preferred Shares the
Company determines that manifest error has been made by virtue of the conversion
price or other information set forth in the applicable Conversion Notice, the
Company shall have the right immediately to notify
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the converting holder of such error (with a copy of such notice given to the
Transfer Agent by facsimile), which notice shall state the number of Common
Shares in dispute, and, notwithstanding such notice from the Company, shall
direct the Transfer Agent to issue and deliver the number of Common Shares not
in dispute as and when required by the Statement of Rights. If the Company shall
have notified the Transfer Agent of any such error, the Company shall, on the
date such notice is given, submit the dispute to Deloitte & Touche LLP or
another firm of independent public accountants of recognized national standing
(the "Auditors") for determination and shall instruct the Auditors to resolve
such dispute and to notify the Company, the Transfer Agent, and the converting
holder of Preferred Shares within one Business Day after such dispute is
submitted to the Auditors. Immediately after receipt of timely notice of the
Auditors' determination, the Company shall instruct the Transfer Agent to issue
to the converting holder any additional Common Shares to which such holder is
entitled based on the determination of the Auditors. If the Auditors shall fail
to notify the Transfer Agent within three Business Days after the applicable
Conversion Notice is given to the Company and the Transfer Agent, then the
Company shall instruct the Transfer Agent to issue, within three Business Days
after receipt of the applicable Conversion Notice, to the converting holder any
additional Common Shares to which such holder is entitled based on the
applicable Conversion Notice. Such immediate action shall be taken by the
Company to assure that there shall be full compliance with the Company's
unqualified obligation that all Common Shares issuable on such conversion be
issued by the due date therefor as provided in the Statement of Rights.
6. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Shares (the
"Closing Date") shall be 12:00 noon, New York City time, on the date which is
(i) one Business Day after the date on which the Buyer has deposited the
purchase price for the Preferred Shares with the Escrow Agent in accordance with
Section 1(c) hereof, (ii) the date specified in Section 1(d) hereof, if
applicable, or (iii) such other mutually agreed to date and time. The closing
shall occur on the Closing Date at the offices of the Escrow Agent or such other
mutually agreed location.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell and issue the
Preferred Shares to the Buyer pursuant to this Agreement is conditioned upon:
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
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(b) Delivery by the Buyer to the Escrow Agent or to the Company of
good funds as payment in full of an amount equal to the purchase price for the
Preferred Shares in accordance with Section 1(c) hereof, if applicable; and
(c) The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares on the Closing Date is conditioned upon:
(a) Delivery by the Company to the Escrow Agent or the Buyer of the
certificates for the Preferred Shares in accordance with this Agreement;
(b) 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 Buyer of a certificate, dated the Closing
Date, of the Chief Executive Officer or the Chief Financial Officer of the
Company confirming such matters;
(c) The receipt by the Buyer of confirmation of the filing with the
Secretary of State of the State of Washington of the Statement of Rights in the
form attached hereto as Annex I;
(d) The receipt by the Buyer of a certificate, dated the Closing Date,
of the Secretary of the Company certifying (1) the Articles of Incorporation and
By-Laws of the Company as in effect on the Closing Date, (2) all resolutions of
the Board of Directors (and committees thereof) of the Company relating to this
Agreement and the transactions contemplated hereby and (3) such other matters as
reasonably requested by the Buyer; and
(e) Receipt by the Buyer on the Closing Date of an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in Annex VI attached hereto.
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9. MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Washington.
(b) 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) 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) 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) This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement.
(f) 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) Any notices required or permitted to be given under the terms of
this Agreement shall be sent by mail or delivered personally (which shall
include facsimile) or by courier and shall be effective five days after being
placed in the mail, if mailed, or 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
Executive Officer (facsimile number (000) 000-0000), copy to Stoel Xxxxx XXX,
Xxxxx 0000, Xxx Xxxxx Xxxxxx, 000 Xxxxxxxxxx Xxxxxx, Xxxxxxx, XX 00000, Attn: L.
Xxxx Xxxxxxxxx (facsimile number (000) 000-0000) or, in the case of the Buyer,
at its address shown on the signature page of this Agreement, with a copy to
Genesee International, Inc., 00000 X.X. 0xx Xxxxxx, Xxxxx 0000, Xxxxxxxx,
Xxxxxxxxxx 00000-0000 (facsimile number 425-462-4645) or such other address as a
party shall have provided by notice to the other party in accordance with this
provision. The Buyer hereby designates as its address for any notice required or
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permitted to be given to the Buyer pursuant to the Statement of Rights the
address shown on the signature page of this Agreement, with a copy to: Advantage
Fund Limited, x/x Xxxxxxx Xxxxxxxxxxxxx, Xxx., 00000 X.X. 0xx Xxxxxx, Xxxxx
0000, Xxxxxxxx, Xxxxxxxxxx 00000-0000 (facsimile number 425-462-4645), until the
Buyer shall designate another address for such purpose.
(h) Prior to the Closing Date, the Buyer shall have the right to
assign all of its rights and obligations under this Agreement with respect to
the purchase of all or any portion of the Preferred Shares, provided any such
assignee, by written instrument duly executed by such assignee, assumes all
obligations of the Buyer hereunder with respect to the purchase of the portion
of the Preferred Shares so assigned and makes the same representations and
warranties with respect thereto as the Buyer makes in this Agreement, whereupon
the Buyer shall be relieved of any further obligations, responsibilities and
liabilities with respect to the purchase of all or the portion of the Preferred
Shares the obligation for the purchase of which has been so assigned. In the
case of any such assignment, the Company shall agree in writing with such
assignee to make available to such assignee the benefits of the Registration
Rights Agreement with respect to the Common Shares issuable on conversion of the
Preferred Shares with respect to which the purchase under this Agreement has
been so assigned.
(i) The respective representations, warranties, covenants and
agreements of the Buyer 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 Preferred 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.
(j) This Agreement and its Annexes set forth the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, whether written or oral, with
respect thereto.
(k) The Buyer shall have the right to terminate this Agreement by
giving notice to the Company at any time at or prior to the Closing Date if:
(1) the Company shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any of
its obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder is
not fulfilled; or
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(3) the closing shall not have occurred on a Closing Date on or
before September 29, 1997, other than solely by reason of a breach of this
Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company hereunder and the Company 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.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer and
the Company by their respective officers thereunto duly authorized as of the
date set forth above.
NUMBER OF SHARES: 5,000
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $5,000,000.00
ADVANTAGE FUND LIMITED
By: /s/
-----------------------------------------
Title: President
Address: x/x XXXXX
Xxxx Xxxxxxxxx 0
Xxxxxxx, Xxxxxxxxxxx Antilles
TERA COMPUTER COMPANY
By: /s/
-----------------------------------------
Title: President and Chief Executive Officer
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